7 Things You "Should" Know by Now

This post is dedicated to both of my twenty-something, professional, college grad, savvy, caring, super smart younger sisters. 

The people I care about most -- my family and friends -- aren't as obsessed with personal finance as I am (I know, big shocker). They come to me with:

"You gotta help me with this stuff"

"I don't know nearly as much as I should.

So here it is, the bare minimum of what you "should" know by now:

The Past (Debt)

  • Pay your credit card balance off each month because:
    • If you carry a balance it will increase the amount of money you owe over time significantly.
    • Also, if you carry a balance month over month for several months, then your credit score (which is your financial G.P.A.) will suffer.
    • I know it's hard to stop using it. But figure out what you're using it on most. Do you actually need that? What can you do instead of going shopping for it? If you don't pay off your credit cards each month, then you are in emergency mode, and it should be your #1 financial goal. 
#1 Recommended Step to $ Peace-of-Mind:
Make paying off your credit card each month your #1 financial goal. 
  • Student loans can wait: 
    • If you have a very good reason for paying them off early then do it. Otherwise let and let live. By paying them off faster you'll save money in interest over time, BUT you may also lose money. Example of how you could lose money: Say your student loans have an interest rate of 4%, but your retirement account performs at 8%, then you would be losing money if you put your extra cash your student loans instead of retirement. I know, you're looking at me like WTF? Keep reading...
  • Interest rates are the price you pay for borrowing money. Always. Look. At. Interest. Rate. ALWAYS. Say your friend needs $500, and they ask you for it but you don't really want to lend it to them because it's your last $500, so you say "No." But your friend counters with, "If you lend me $500 now, I'll give you back $600 in a month." Well that sounds sweet, right? So, you decide you'll lend it. You lent $500, and got back $600, so you made $100. The $100 dollar difference is interest. It's the money your friend paid you so they could barrow from you.  
    • Interest rate is also what you pay your credit card company, your student loan lender, and every loan ever. 
    • Once you understand interest rates, then you can make educated financial decisions pretty much forever. 
#2 Recommended Step to $ Peace-of-Mind:
Write down all of your debt in one place (spreadsheets a glorious things people!), the interest rate for each, automate the minimum payment for each, and then decide if there are any you want to pay off more quickly. Tackle either the smallest loan or the highest interest rate loan first. Only tackle one at a time. These calculators will help you decide which/if you want to pay them more quickly, and here I share my own interest rate epiphany. 



The Present (Budgeting, Credit Score)

  • Budget Future-Focused Flow I hate the word budget so much. Instead, focus on the future. What is your dream scenario? What if you had all the money that ever lived? :) What would you do with your time? Go on a road trip cross country, fly all over the world, volunteer with orphan elephants in Kenya? Rather than focus on the past pennies you've lost (aka budgeting) focus on where you want money (which is just a tool to get you something) to go. Decide on your life goals, and automate your money to support getting you there. Automate what goes into savings, your checking account, and retirement. Set and forget it. Auto-pay everything and make how you want to spend your time the question that drives your financial decisions, rather than how you want to spend your money. 
#3 Recommended Step to $ Peace-of-Mind:
Automate 'er thing! Read this to see what I do with my money. Even if you don't have direct deposit, set aside time (like actually put it on a calendar) for 15mins twice a month to make the transfers. For me, on the 15th and last day of the month, I take 15mins to look at my checklist for both what's automated and what's not. Yes, I have a checklist so I don't have to just remember it all (it's in the same place as the calendar), and I check: "Okay X amount went to retirement as it was suppose to. Check. It's the last day of the month, so I'll pay the rent. Check. etc.).
  • Get your financial G.P.A  (also known as your CREDIT SCORE). This is what banks look at to decide if (a) they should lend money to you, and they judge you on whether you'll pay them back based on this, and (b) what Interest rate -- our friend from above -- they'll charge you. In other words, if you want to barrow $5,000 to buy a car, then whoever is deciding whether to lend you the money will look at your credit score to decide if they will lend it to you, and how much on top of the $5,000 you'll have to pay them back. If you have a high credit score (like an "A") then maybe you'll pay back $5,200, but if you have a low credit score (like a "D") then you'll pay back $6,200. It's up to them and your credit score. Credit score are numeric and loosely letter grades. But the point is, know yours.
  • Keep (or make!) your Credit Score solid by paying off your credit card each month, making on time payments, keeping credit cards (or other debt) open for a long period of time (years), keeping your debt-to-income ratio low. Debt to income ratio example: Say my credit card limit is $10,000 and I'm in credit card debt for $9,000, then my debt-to-income ratio is very high because I'm using 90% of my limit. But if my credit card limit is $10,000, and I have credit debt of $1,000, then my debt-to-income ratio is very low, which is a good thing because it shows I'm responsible and not over spending. 

#4 Recommended Step to $ Peace-of-Mind:
Get your financial G.P.A. credit score here and check it every 6 months. (Again, make spirochete for this!)

The Future (Savings, Retirement)

  • Saving, Retirement, and Investing are 3 different things. 
  • Save FIRST. If you leave it for last, or for whatever's "left over" you know you're not going to do it. Even if just $20 bucks a month. Automate it. One of the most gratifying feelings is seeing how many months I can live off of my savings (again, automatically calculated on my future-focused flow preadsheet). Decide how many months feels right to you (again the personal part of personal finance) and make that target your financial goal. 
#5 Recommended Step to $ Peace-of-Mind:
Automate your savings. Here is how I automate mine. And there's a super easy way to automate as well -- an app called Digit, which pulls spare change from your account automatically. If $20 a month sounds like too much, then Digit is a great place to start. 
  • Retirement. It's the inverse of borrowing money. Rather than paying money to barrow money, someone is paying you to barrow your money and you get paid interest. How much interest? Well, that depends how the stock market performs. Traditionally a retirement fund is an account you put money into (aka contribute to), and that money gets traded on the stock market, which goes up and down. Some days you lose money, some days you make money. But, on average, and in the U.S., and over several years (like 30+), you make money... enough money to where you won't have to work anymore (aka don't have to trade time for money anymore). That's when you're "retired."
    • There are a zillion types of retirement accounts. But they basically boil down to this:
      • Before taxes: Your $ goes into your retirement account > You get your paycheck
      • After taxes: You get your paycheck > Your $ goes into your retirement account
  • Give Yourself a Raise! The first time many people get a retirement account is with their first "real job." And, often times the employer also puts money into that retirement account. This is called "matching" -- for every $1 you put in, your employer puts in $1. Now it isn't always $1 for $1. Maybe your employer puts in 50 cents for every $1 you put in. Regardless of what it is, you should be taking advantage of it. Automate it, and match. Note: the IRS (Uncle Sam) puts a limit on how much you can put into retirement each year (wongt wongt wongt). Nonetheless, you should make it a financial goal to get as much out of this perk as possible because it means you won't have to work sooner (a.k.a. can retire sooner).
#6 Recommended Step to $ Peace-of-Mind:
Find out what type of retirement account your employer provides, sign up for it, automate it, and maximize your employer match as much as possible. Read this
  • Investing. Until you pay off your credit cards each month, have an emergency fund with a few months of savings (whatever amount of months let you sleep at night), and are maxing out your retirement contribution, then I'm not talking to you about investing. Period. Build the foundation of the house before you put on the roof. 

Big Bonus
  • Insurance. Like crazy basic explanation: If there's an emergency (injury, death, earthquake, etc.) you (or someone affected by he emergency) get paid a lot to help you get back on your feet. There are many types of insurance, here are a few:
    • Health: If you get really sick or into an accident, insurance helps pay for you to get better.
    • Car: If you hit someone's car, or they hit you, then insurance helps pay for the damage.
    • Life: If you (or someone you love) dies, then insurance pays you to help get back on your feet. Now this only typically applies if the person who died was a breadwinner. Example: You work and you job supports you and your spouse. If you have life insurance, and unexpectedly pass, then your spouse gets paid thousands of dollars because they needed your income form your job to subsist. I know. I'm sorry it's a morbid one. But insurance is for this. 
It's relatively common for employers to provide health and life insurance.

#7 Recommended Step to $ Peace-of-Mind:
Get health insurance from your employer or here. If you have a car, get car insurance. If you rent consider renters insurance. If you provide for anyone other than yourself (send your mom some money each month even) then consider life insurance. 


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designed to help you start controlling your money (so it stops controlling you),
and getting on a path to money peace-of-mind.

 





Here's To You! Thank you!

Hey you! Ya, you. Who else would I be talking to?

Thank you.

Thanks to all 7,000+ of you...

...in 107 countries around the world...





in all 50 states...



who keep coming back...


and keep this lovely little blog growing...





from my private personal secret money diary experiment in 2012, to the a money peace-of-mind community that helps you build money confidence, courage, and proves your'e not alone...


"What I really love about the blog is I guess what you could call the foundational principles of the entire blog. I also agree that happiness does buy money :) ... I basically have been following the advice on your website for a few years now." 
"This is a masterpiece, have enjoyed reading this amazing and an informative article [blog] after ages. Thanks for sharing." 
"Almost there - I have been revising my debt payments to keep with my goal of paying it off at a certain time frame. I think I am driving myself crazy sometimes editing the spreadsheet but like you said, I am just sticking to a plan =)"



Haha Money makes me feel...

Awesome!
Like I the resources to financial health are out there for me
Like the internet is being used for good
Like happiness can buy me money
Poll Maker

Why Budgets Build Bad Habits...and what I do instead

Simply put...

Budgets are retroactive.

Peace-of-mind planning is proactive.

Let me explain...

Imagine you go to a restaurant, and you drink all of the water in your glass. Then you wait and wait and wait and grow increasingly thirsty until you feel like your throat is made of sand paper. The waiter finally comes by to fill your glass and you are relieved of your thirst endured agony. That's Budgeting. 

Now...

Imagine you go to a restaurant, and you drink half to the water in your glass. Immediately, before your throat ever gets a chance to hint at ever feeling dry - BOOM! Your glass if full. Oh yeah! #win Your glass never goes less than half full, you never have to twiddle your parched little fingers to get a drop of relief, you are always abounding with refreshment. That's Peace-of-mind planning. 

In other words, 

Budgets = Drain you (a.k.a. living paycheck to paycheck)

Peace-of-mind planning = Replenishes you. You are overflowing. 

Budgets also never work. Unless you're an accountant, who wants to sit there saving receipts or looking backwards on your life just to deprive yourself of things you enjoy (coffee in the morning, eating out with friends, badass new art supplies -- that last one's my personal fave!). Whether they're online tools that "automatically" budget for you, or manual receipt-saving, they look backwards on spending rather than forward on living.

Here's what I do...(I haven't budgeted for about a 2 years now)...

:::drum roll:::

Peace-of-mind planning...

Step 1: Decide on the things you love and give you joy. That are "worth" spending time and energy on because you love them.

Here's a helpful exercise: What's the last purchase you made that was a little more than you thought you could afford -- a splurge if you will -- and you felt awesome about it? You told all of your friends, you can't stop thinking about it, and it will serve you many times over. Maybe it's a brand new shiny convertible, a dream dress that fits perfectly, a huge micro loan to a woman in the Philippines that can now run her business because of your generosity (that last one's mine again :)

Put those things first. For me it's saving like crazy for a house, traveling, and art supplies. I put those things (and my dreams) first. 

Step 2: Separate the things you love and give you joy from your obligations. 

Why do you overspend? Same reason why you over eat. Probably because you have only one checking account. Not because your will power is so awful or you're such bad person. But because the chocolate cake is next to the low-fat yogurt, and -- of course! -- you're going to eat the cake.

I have all of my "dream"/"nice-to-have" money (the stuff from step #1) in separate accounts from the stuff that I "must-pay." Having both my "nice-to-have", savings, and dreams, in the same account as my "must-pay" expenses is, again, like having chocolate cake in the house next to the low fat yogurt while trying to lose weight. It's not going to work. You're going to eat the cake. Don't fool yourself.

You can figure out what your dreams are, how much they'll cost, how much you want to save, how much you have to have to survive, and then separate them.

Step 3: Set it up and forget it. 

Put numbers on each of these categories: Dreams, Savings, Must-pay expenses, and Nice-to-have expenses. Then put each bucket in a different account. 

Here's an example -- notice how the accounts at the bottom:



The example above is an example of what I do. I automate direct-deposits to go into each account, and only carry the Nice-to-Have checking account debit card in my wallet. This way, I'll never go over (I'll never eat the "chocolate" cake).

Bonus! Go for the dream!

I took it one step further by also figuring out how 3 scenarios: 

1- A survival scenario = given my current expenses what is the bare minimum I would need in order to not live on the streets. 

2 - A realistic scenario (the example above) = what is more likely, and I'm not just eating ramen noodles.

3 - My dream scenario - what I wish my cashflow looked like. Notice how my housing is $0, that's because I wouldn't pay for housing in this scenario (because my tenants would, or my house would be paid off), and how there's no debt and a ton of savings and dream spending. In my 'dream' example I'd also be making 170% times more. 


This gives me a goal to aim for, a way of looking forward to filling the glass before the water runs out. 

Extra Bonus: Emergency Savings

At the bottom of my peace-of-mind plan I also have how many months I could live off of my emergency savings if the survival scenario came true. In this example it's 5.1 months:



That's another proactive peace-of-mind win that puts things in perspective. 

Through proactive planning, I've relieved the pressure from having the "cake" in the house, started actually seeing what it would look like to live my dream life (and am working words it because I can see the "finish line" clearly), and have built a realistic grasp on my safety net should there be an emergency. Take that retroactive budgeting! Boom!

The numbers above aren't my own (I simplified them a bit for your viewing pleasure), but they are from the guide I designed for you...



A little bundle of awesome designed to start you on a path to growing your money tree
You can get the Guide -- where you can plug in your own numbers in the template above -- videos, step-by-step lessons, and my real life examples on money management and managing money stress happiness. 

Here's a sneak peak of the checklist -- the foundation for the course...



 


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Checklist to Getting Your $h*t Together Checklist

BEFORE ... Survival mode :(

At the beginning of my pay off journey I was in Survive mode...$40,000 in student loans, not paying off my credit cards each month, not saving for retirement, zero emergency fund...wongt wongt wongt..

But then I planted a seed...


AFTER ... ALIVE mode! =D

My money tree sprouted through reading ferociously about personal finance, calculating and re-calculating my budget (I had dreams of spreadsheet. really!)! 

And now, I have no student loan burden, pay off my credit cards each month, put more than the national average towards retirement, and can live off of my emergency fund for at least 5 months. 

I put everything I learned into ...



A little bundle of awesome designed to start you on a path to growing your money tree. 
With videos, a checklist, step-by-step lesson on money management and managing money stress happiness. 

Here's a sneak peak...





 


3 Awesome Debt Calculators & Ice Cream

Debt calculators often have a bunch of ads all over the place (and yes, I have seen enough to know...it's Saturday night and I'm writing this. Love this stuff!), only let you plug in one loan/line of credit, and are thus now fun. But these three are pretty much as awesome as eating ice cream...





 3. Snow Cone = Time Value



This one is for you other nerdy cool speed sheet lovers out there. Holler! You can plug in multiple loans/lines of credit and it gives you a schedule for when you'll be done that you can see line by line. (There's another I reviewed from Pine Grove, which is great if you only have just one line of credit/loan.) It also compares different strategies with graphs and charts...again, great for the nerdy cool kids who love that stuff (yours truly!).











 

2. Two scoops = Unbury.me


This is what I used to pay down my debt. It's super simple. Has the cleanest interface out there; it's just one page. Requires no login, and is basically a spreed sheet with a great interface. Just plug in your numbers and play away. It's flexible so you can run different scenarios like Avalanche (paying highest interest first) vs. Snowball (paying smallest principals first) so you can see what works for you. You can also adjust the numbers on a sliding scale thingy...and who doesn't like those!?












1. Ice Cream Sunday =  Ready for Zero

This is a free web and mobile tool that connects directly to your accounts and updates automatically. It's really fresh and fluid, can sync it with your calendar, and can send you progress reports and digest emails that you can schedule for yourself. Personally, I just want to set up a repayment plan and then automate it (which is why all I needed were two scoops), and dings and emails reminding me of my debt wouldn't have been very encouraging. When I was paying off my debt, I only used to check my balance once a month. Nonetheless, this is a pretty fantastic tool. 



Here's one loan/line of credit example:



It also has adjustable nob sliding thingies. #win



Paying in Full
As a reminder (or news) to you, the above is what happens if I pay my credit card in full this month. I  save myself 3 years and 5 months of debt. 


Paying the Minimum
As a reminder (or news) to you, the above is what happens if I pay my credit card minimum, it would take me 3 years and 5 months + $134.52 extra. #Interest

This is a small example, but imagine what this looks like when it's thousands of dollars.

Use one of these calculators today! Time is ticking! The ice cream is melting!


Also, remember, getting your sh*t together is more than just about managing debt, and debt -- in and of itself (is that how that saying goes?) -- isn't a "bad" thing. You need to understanding interest (which the calculators above will help with), your goals, the "opportunity cost" of paying debt versus doing something else with your money (and time). And that's why I share my money experience in...




BEFORE ... Survival mode :(

At the beginning of my pay off journey I was in Survive mode...$40,000 in student loans, not paying off my credit cards each month, not saving for retirement, zero emergency fund...wongt wongt wongt..

But then I planted a seed...


AFTER ... ALIVE mode! =D

My money tree sprouted through reading ferociously about personal finance, calculating and re-calculating my budget (I had dreams of spreadsheet. really.)! 

And now, I have no student loan burden, pay off my credit cards each month, put more than the national average towards retirement, and can live off of my emergency fund for at least 5 months. 

I put everything I learned into ...



A little bundle of awesome designed to start you on a path to growing your money tree. 
With videos, a checklist, step-by-step lesson on money management and managing money stress happiness. 

Here's a sneak peak...



 


Was this helpful? Share it with a friend. 

From a Hole in the Ground (a.k.a. Your Debt) to a Thriving Money Tree


A masterpiece by yours truly. I hope you <3 it!
Hit it!

This is a story all about how, my life got flipped turned upside down... {doo do do do - do do}...

Here you are, feeling fresh as a prince of bel-air and BOOM! out of no where you're tumbling faster than the speed of sound down a rabbit hole Alice-in-Wonderland style; totally confused, it's getting darker and darker, and suddenly BAM! You pancake onto a rock solid reality check. 

You can't pay for anything. Your house, your car, you can't keep up with the bills, the IRS is auditing you, and credit card after credit card is calling for their money back. This is no joke. It's EMERGENCY mode. A place that you dug yourself into (or medical bills, a divorce, or life catastrophe heaved you into head first). Breathe. I believe you can get out of this. In the great wisdom of my dear friend Anna (hey girl!), "Strength isn't measured by never falling down, it's measured by how fast you bounce back up when you do." Word sister! 

That said, you'll need a shovel to start filling in the crater in your money life and get yourself on your feet again. I got myself out of $40,000 in student loans, BUUUTTT that was not Emergency mode. Emergency mode is when you truly are at the bottom of your financial well and you can't meet the financial responsibilities you have towards others (the IRS, your mortgage lender, medical bills, etc.) and on top of that you're unemployed. That's emergency mode. 

Errrrr.

Time Out. 

If you're in emergency mode. Stop reading here. I don't have a shovel for you, but these guys do. 
If you're not in emergency mode keep going...

Back to our regularly scheduled program. Hit it!

Now you may feel like you're in emergency mode when you have debt. But you may just be in SURVIVAL mode. This is where I was when I didn't know how the F#@k to manage my money. I had no idea what retirement really meant, no emergency savings, didn't pay off my credit cards each month, thought being in debt was bad but didn't realize that having debt with less interest than the inflation rate is actually free money (I know, that last one took me a while to get too). 

Survival mode is the hole you've dug all on your own...often times without a life catastrophe. That means your habits, your choices, your decisions got you in that hole. Wongt wongt wongt. BUT, those can get you out too. By planting a seed to build better money habits and creating a budget peace-of-mind plan your money tree will start to sprout. 

That's what I did when I was totally lost in my debt hole of doom. I read ferociously about personal finance, I calculated and re-calcualted and calculated again to figure out the numbers, I negotiated with my creditors, I dreampt about spreedsheets (really!), and I finally got my shit together. Now that's something I am able to share with you -- a seed of awesomeness.

:::drum roll:::

... or even better...

I'd like to take take minute, just sit right there
I'll tell you how I became the prince princess of a town called Bel-Air my bank account!

Ta da! Everything I know about money management in one sweet seed package:



With the wisdom in that seed I went from $40,000 in student loans, not paying off my credit cards each month, not saving for retirement, zero emergency fund to...

ALIVE mode! My tree has sprouted! Woot woot!
I have no student loan burden, pay off my credit cards each month, put more than the national average towards retirement, and can live off of my emergency fund for at least 5 months. 

(Wow. Stepping back and putting it all in one simple sentences is really flooring.)

Here's a sneak peak...


Enter your email below for a free PDF of the checklist. 

I put the Guide To Getting Your $h*t Together with everything I wish someone would've told me when I was in the hamster wheel of debt. Running running running, but feeling like I wasn't going any where (a.k.a. Survival mode). 

I now have stability,  peace of mind, and can sleep at night without dreaming of spreadsheets. I am fully confident and comfortable with my personal finances. Ah...the sweet sweet taste of financial victory...of being financially alive instead of surviving. It's good stuff, and I designed the Guide to Getting Your $h*t Together to help you feel that way too.

Needless to say I'm now slowly gathering water so it grows steadily into a su-weet money tree that can THRIVE for many moons.

You can get there too. Plant a seed for your future.




 

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