I’ve always been financially minded.
Apparently since birth. My grandmother loves to recant obscure stories of grabbing loose change for a piggy bank I never spent from and other tales I’m clearly too old to recall. Meanwhile, my explanation of how diversification will reduce risk falls on deaf ears.
For me, the amount of time I spend thinking about my money feels natural. As I grew older, my capital grew, I picked up more financial obligations (aka a house), so I grew my understanding of personal finances. I was just a normal guy picking up a normal adult skill.
Now, as I talk to more of my friends, family, and acquaintances … I realized I am way way above the norm. I read books, I build models for my finances, I read reviews on brokerages, I travel hack to save money, and I am detailed about my monthly budgets. Maybe it’s my undergrad in Economics (and unrelated Comp Sci) and masters in Business, maybe it’s my frugal Caribbean upbringing, who knows. But, all this time I really thought nothing of it.
I won’t sit here and preach about why my level of time and investment is perfect for everyone, but I will say there are a few key things everyone should be using. A few habits and tools where everyone should spend more time on their personal finances.
Hopefully for most of you, there is nothing new. But, I’d love feedback if any of these were new.
Track your net worth
It’s important to know how much you are worth. More importantly, are you trending up or down. Increasing your net worth over time is the basis of personal finance.
Personal Capital is my tool of choice. But there is also Mint, Learnvest, and many others provide the same level of monitoring. Ideally, you need to set budgets and monitor your spending in key categories. At minimum, work to make sure you are increasing your networth over time.
Use a free credit monitoring service
Years ago, it was hard to regularly track your credit online. You got 1 free credit report a year, and it didn’t include a FICO score. There were more scams and hustles aimed to take your money though.
This has changed. There are now several ways you can get honest and reliable monitoring of your credit report for free. I like Credit Karma, but several credit cards, Discover, Capital One & Citi, also offer them. Just do a little research to ensure the service is reputable. Staying on top of your credit score and ensuring it stays high will pay off for any and every loan you ever take out, saving you a lot of money.
Setup a no-think budget with bank accounts
Almost everyone I’ve ever talked to (except me) hates the idea of a budget. People have an image of spending hours each month reconciling every purchase and setting budgets for things like import beer vs. domestic. Trust me, it doesn’t need to be that complicated.
At minimum, put away a fixed amount in savings every month and DON’T SPEND IT! You can start small, but make sure you grow aggressively. This pool of money will be for your investments and will ensure you are growing you’re networth. When it’s big enough (a few thousand), a world of investing will start to open up for you.
I use Capital One 360, because they are easy to use, allow the creation of multiple accounts easily, and have a good interest rate. Their interface also caters to savers, with features like saving goals.
I evolved from this into a Savings / Investments, Utility, and Discretionary accounts. The discretionary account gets a fixed amount for just things I want, ensuring I limit my spending to a number I like. Core living expenses come from utility, including healthcare, rent, car repairs, gas, etc, with a gap for unknowns. But furniture, food, drinks, eating out, travel, and everything else comes from discretionary. It’s an easy way to force discipline about your spending habits. Each gets a fixed amount monthly and I roll over unspent utility back into my savings / investments and keep my discretionary very very lean.
The best part is as I earn more money, I save more automatically. Increasing my discretionary spending is something I have to think about and choose, this goes a long way in building good money habits.
Find ways to save money on things you love
I love to travel. But, it can be expensive. So, I spend time and effort here to travel affordably. Outside of just looking for deals, I utilize travel points on credit cards to keep my yearly travel budget neatly within discretionary spending.
Penny pinching can be hard and time consuming. But, if there is one thing you know consumes a lot of your money, invest the time and effort to do it affordably. It pays off in that I save thousands yearly and it’s way more manageable than trying to save on everything all of the time (although I try). Cars, Tech, Clothes … whatever your spending vice is, make sure you are doing it in the most cost-effective way possible. Blogs & Forums exist to help you on whatever it is.
Pay off high-interest debt, especially credit cards
I almost didn’t include this because it seems like a no-brainer. You should not have any debt where you are paying more than you earn on your investments (and really earn over years, not one random win). If you are an active investor consistently making 8%, you have flexibility. If all you have is a savings account earning 1%, you shouldn’t have debt. You are losing money every day.
Debt is a great tool to borrow low and hold money in higher earning investments, but it’s risky when you are low on assets because in case something happens (e.g. getting laid off), it will cause you stress and pain. All debt has a cost, and you need to be prudent to make sure you aren’t losing money.