Because everyone’s personal finance story is different, I thought it might be nice to start featuring some guest posts on this blog so we can all take a peek at how other milliennials manage their finances and maybe pick up a tip or two. I’m so excited that my friend Michelle from Millennial Career has agreed to share her personal finance journey with us today! She’s so knowledgeable and on top of her finances that you’d think she does this for a living!
I was 17 when I got my first job at Coldstone Creamery, making $6.25/hour and singing embarrassing songs to earn tips. During college, I had a few jobs: $8/hour working at the student store, $10/hour as an online tutor, and $12/hour (trying) to sell Hoover vacuum cleaners at Walmart. Despite my side jobs, at one point in my undergrad career, I had less than $350 in my bank account. When I graduated from college 4 years ago, my starting salary was $30k.
Why am I sharing all of this? Because I come from a background where I understand how hard it is to make and manage money. Trust me, I’ve been there. Though I am in much better financial shape than I was 4 years ago, those horrible wages and sad jobs really encouraged me to be smart with my money. My motivation for studying personal finance was simple: 1) I never want to be in a situation again where I felt helpless or tied down because of my money. With $350 in my bank account, I had a taste of how that felt, and it wasn’t fun. 2) I work pretty damn hard to make money, so I should fix anything that is erroneously chipping it away. 3) True wealth is when your money works for you, not vice versa.
Over the past few years, I’ve been very disciplined with how I manage and budget my money. For those just starting out on their financial independence journey or need a kick of motivation, here are my general suggestions.
Take control of your money
You hear of surprising statistics where nearly half of Americans live paycheck to paycheck. I knew that I didn’t want to be part of the population that lacked financial preparation, nor do I want to be in a situation where my future spouse and I have a strained relationship because of money issues. That lifestyle is way too stressful for me; if I can prevent that from happening, then I will. I want to feel financially free of debt; I want to treat myself right to certain “luxuries,” take vacations when I want, and not feel guilty for my purchases. If I didn’t have a nest egg (meaning, at least 6 months of living expenses saved up), I knew that the short term materialistic things that I wanted would need to wait. If this sounds like you, be disciplined and pay off your debt; stick to a budget. Stop letting your loan interest grow and start saving for your emergency fund.
One of my favorite personal finance books is called “I Will Teach You To Be Rich” by Ramit Sethi. He has really powerful behavioral changing techniques, especially when it comes to managing your money. One of his suggestions was to keep separate checking and savings accounts; withdraw money only from your checking account. Transfer your income into a savings account even before you can touch or see the money, and keep your checking account numbers low. The psychology behind it is unbelievable.
For example, say my employer direct deposits $6000 every month into my checking account. Before I even get to touch (or see) this $6000, I immediately use that money to pay off my credit cards, pay for rent, contribute to my IRA’s, and transfer healthy amounts of money to my savings account. After paying everything off, let’s say the $6000 decreases to a mere $900 in my checking account. In my head, I freak out about having so little, (because I never touch my savings!) but I know on the backend, I’m taking control of my debt and growing my nest egg. It might sound silly, but try it.
Make your money work for you
I don’t know about you, but I really don’t want to work forever (unless it’s at my own company). Ugh. The thought of having to work for someone from 9-6 for the next 40, 50 or even 60 years sounds absolutely miserable. When I retire, I want to be free to travel with my retirement money, not waiting to cash my next Social Security check. For this reason, I started my personal finance journey early so I can hopefully retire (early) and enjoy life with the money that I worked so hard to earn.
As you can probably tell, I’m anal about finding ways to keep the money I earn and grow it. What this means is:
- Being responsible with checking my mint.com and credit card statements for anything that looks out of the ordinary. Waive out of fees you don’t need to pay (like delinquent credit card payments when you forget)
- Finding high interest savings accounts where your money grows for just sitting there (ya, rly). I currently use Capital One 360 for ALL my savings (money that I need within the next 5 years) and it’s sits there untouched (because I only withdraw from my checking account, remember). Plus, I get an extra $XX in interest per month. Pretty sweet.
- Not having to pay more interest than you need, whether it be on credit cards, car payments, student loans, or personal loans. If I could save an extra $400 by paying off my loan a bit earlier, then hell yeah. Paying for interest on your interest sucks and digs you into a deeper hole.
- Making smart investments with your money. Find a brokerage with low trading fees or funds with low expense ratios. It’s all about dem fees. Plus smart people know to diversify their portfolio, so that it’s not just all in one place.
- Maxing out your 401K and IRAs, to reduce your taxable income, because you don’t want to owe more money than you need to the government, duh 🙂
- Understanding that low monthly installments with high interest rates means that you pay more in the long run. Don’t get shortsighted by shiny low monthly payments, and strive to pay off debt aggressively.
- Doing your research on what you can write off as a tax deduction. For me, this means taking my taxes to a professional who might know the loopholes better than me, and keeping clean track of what is deductible.
They say money doesn’t grow on trees, but you sure as hell can do your best to water it to make it grow.
Stop trying to keep up with the Joneses
This one is huge. Many people get caught up in this rat race about showing off their latest gadgets, purses, cars, houses, etc. It’s really easy to want to “one-up” others and buy into consumerism. It’s fine to splurge every once in a while, especially if you’ve been diligent about growing your nest egg and savings, maxing out your 401k, and paying off your debt — but if you are living paycheck to paycheck or have massive amounts of loans, then stop. Stop trying to impress other people because newsflash: they don’t care. If you’ve ever read “The Millionaire Next Door” by Thomas Stanley, you’ll understand that the wealthy don’t necessarily drive the fanciest cars or rep the most luxurious brands.
There are so many (free) resources out there on how to attain financial freedom, and it’s not impossible. Stay diligent and motivated, and of course, be patient — your future self will thank you.