I have been so impressed with many of the responses to this recent Reader Poll About Emergency Funds.Â Next week, I’ll write a post, summarizing many of those responses, and share the final poll results with you.
Some of the comments (and a couple of emails that I received) really got me to thinking.Â So, I turn, once again, to my loyal readers.
If you had a chance to talk to a personal finance ‘newbie’ – What would you say to them?Â Imagine advising a recent high school or college graduate, a young married couple, a single-parent, a teenager working at her first job.Â What advice would you have for them?
I’d love to read your practical tips for newbies – simple, everyday choices which will lead to successful futures.Â Your comments can be as detailed as you’d like, but what I’m looking for are tips that are easy to understand, realistic, and universal.Â I’m thinking about things like – managing a checkbook, reducing fees, managing credit cards, understanding interest, things to avoid, building better budgets, etc.
Once several of you leave comments, I’ll summarize the results and present the ‘best-of-the-best’ in a post.
I don’t really do “contests”.Â But, for the first 200 people who contribute a practical tip, I’ll donate one dollar to a local charity.Â So, your comments will not only help those who read the blog, they’ll also help a local child go to camp!
Side note:Â A few months ago, I asked my fellow personal finance bloggers to submit their very best personal finance tips.Â If you are a blogger and your best tip is not listed, leave a comment here (or over at the ‘very best tips‘ post) and I’ll add your link to the original list.
20 thoughts on “Reader Feedback Request – Practical Tips For Personal Finance Newbies”
My number one piece of advice would be to SPEND LESS THAN YOU EARN. Simple as that. A person who earns $5 and only spends $4 will be better off than the person who earns $20 and spends $21.
Don’t be afraid. Don’t let money, budgets, finances, investing, etc. be such a ‘mystery’ that you avoid learning and doing.
Write down your income and your outgo every month just before payday. Be honest about any deficit spending you’ve done the previous month and give every incoming dollar a place to go. Even if you don’t stick to the plan exactly every month, you’ll be far better off in the long run and you’ll head in the right direction.
Establish longterm goals every 6 months or so. We are on a crazy plan: “Save $1000 a month for 96 months for our two sons’ college educations.” We started this process late (the oldest is 16 and we started 18 months ago), but not too late to save ourselves and them a lot of grief with student loan debt.
I am a nerd with spreadsheets, so I also like to give the whole family a report periodically on where we stand with our budget, savings, giving, and debt (only the mortgage now).
Put money into savings using automatic deductions on the day that your paycheck comes. This way it is at least one step harder to spend that money.
With that in mind, have lots of E savings accounts. They are free and label them (vacation) (New Car) etc, everything you are saving up for. This way you are earning interest as you save up for future large expenses. It will cost you less dollars to buy that item since you earned interest on that saved money, instead of the product costing you more by financing the product and having to spend more money on interest.
Try to get to the point where you’re paying your insurance policies in full. That way, you’ll have a cheaper overall rate.
If you don’t have enough cash lying around to make a $500 car insurance payment, start setting money aside so you can do that in the future.
Then, each month, pay yourself $83.33 ($500 divided by six months) and deposit it into a high-interest savings account.
You’ll have a lower overall premium and you’ll be able to earn interest on the money.
1. Pay yourself first. Each month, put aside a set amount of $$$ that you won’t touch before budgeting for other items. (The only exception to this rule is if you have outstanding credit card debt that is accumulating at a huge interest rate.)
2. Learn how compound interest works, so you can start putting retirement money away now. I continue to be amazed at how many newbies fail to take advantage of a retirement plan, especially when they are young and have a lot of time to compound.
3. There’s no shame in buying used. This refers to cars, homes, pets, gadgets, clothing.
1) Budgeting: Double, no triplecheck your monthly expenses for fat to trim off. Do you need all the movie channels on your cable lineup? Can you do without long distance on your home phone for 3-4 months to catch up on something else? Can you find better life insurance rates?
2) Driving: Go to work early to avoid idling in traffic. Drive the speed limit. Keep your tires at the right PSI. You’ll get 10% back on your gas expenses pretty quickly. Find someone to alternate a carpool with twice a week, that’s another 15% of the commuting gas, too.
3) Got credit card points? Use what you can to pay down the balance. You’ll see what a bad deal they were to begin with.
Identify annual expenses ahead of time and start saving for them.
Learn to budget, or at least do a rough-estimate budget.
Thanks to the miracle of compounding interest, the most important financial consideration is start saving early. When you are young, time is on your side. Use it or lose it.
My two biggest tips are:
1) Don’t buy anything with a credit card that you don’t already have money in the bank to pay for as soon as the bill comes. (And never pay less than the entire balance due on a credit card bill)
2) Start contributing to your company’s 401k as soon as you are eligible. My former employer didn’t let workers contribute until the January after their first year anniversary with the company. So I started contributing when I was 23, even though they didn’t offer any match back in those days. And if I’d had it to do again, I would have contributed to an IRA during the year I wasn’t eligible for my 401k. I know it’s hard to think about saving for retirement when you’re 18 or 22 or whatever, but if you want to have a comfortable retirement, you MUST start saving for it at the earliest time you can. At the time, I was worried about overcommitting and not being able to access the money without penalty, so I started out contributing just 3 percent of my gross income and raised it slowly as I got raises until I maxed out the amount my company would let me put in the 401k. (They had a max of 15 percent of income, and I never did earn enough salary to reach the federal max for contributions, but I still put away as much as I could.)
1) Read “The Total Money Makeover” by Dave Ramsey
2) spend LESS than you make, put the difference towards DEBT or an emergency fund
3) buy used vehicles – never new! and always with cash
4) avoid new debt like the plague
5) have a solid budget each month – and stick to it – each month will get better
6) after no debt and a big emergency fund – save for college then maximize retirement savings
Cut down on utility bills without feeling any pain.
You can use my Compact Flourescent cost calculator spreadsheet to determine how soon they will pay themselves off based on their price and your electric rate
CFL pay off analysis spreadsheet:
If your toilet isn’t lowflush, stick a brick or rock in the toilet tank and you’ll immediately use 1/3 to 1/2 a gallon less per flush. I did this just yesterday with a big rock I found in our garden while tilling.
Use fans and space heaters as much as possible instead of housewide AC and heating.
1) Spend less than you earn/Pay yourself first
2) Automate as much saving as you can whether it be 401(k) at work or monthly transfers from checking to savings/investments. You’ll get so used to not having that money you won’t even think twice about it after a little while.
3) Read various books/blogs/articles on personal finance – there is so much advice out there and you have to determine for yourself what really applies and what doesn’t. This will also help you have a basic level of knowledge to know you’re not getting screwed by professionals that handle your money – whether it be a broker, insurance agent, etc.
Don’t be lazy. For example, my dad buys tons of paper plates and cups because he’d much rather use those than do the dishes. The reality is, you’re going to have to do dishes recardless, for silveware and pots and pans and other cooking essentials. Not only is it a waste of money to buy these products all the time, they make food taste worse, and is horrible for the environment. Simple things like conserving and reusing. I never have to buy make up because I only use what I need. And I don’t keep reapplying it all day. And I don’t waste money on different colors I may wear ONCE and never wear again.
In addition to that, if you’ve got junk laying around you’re not using, GET RID OF IT. You’ll love not having clutter around, and sell it on ebay for a few extra bucks. I read manga, and when I’m done collecting a series, 99% of the time, I am not gonna read it again. I turn around, sell the whole collection on ebay and usually get at LEAST half the price back. Why waste space if you’re never gonna touch it again, get some of your money back!
Get into a habit of saving as soon as possible even if it’s only a $1 a week. Once you have $100 in the bank you will probably want to see how you can get to $200 quicker and you realize that you can save money.
Do automatic payroll deductions like 401k first. Then set money aside for IRAs next.
Pay off high interest loans and ccs before saving money for emergency fund, unless you know you are going to be without a job soon.
My Tip: Don’t day trade! Seriously, invest automatically for the long term. Leave day trading up to the professionals.
1) Cut your smoking in half within six months. Health, insurability and available cash will increase dramatically. See if you can stop completely within one year.
2) Find something you love to do at home, and spend your money on that. It’s amazing how much money I spent when I went out at night for fun. When my buddies got the Xbox, we actually spent less money.
One of the best things for a personal finance newbie to understand is the purpose of personal finance: spending money on the things you are passionate about! I think lots of people don’t track their spending or save for retirement because they focus on the negative aspects of limiting spending. But by limiting spending in areas you don’t really care about (maybe cable TV or a new car), you can spend money on things you love. I think newbies should start by listing their priorities, passions and goals, and then focus on saving money for those things. Cut out all the other stuff.
Beyond that, I think setting up automatic retirement savings is great, because then you never miss the money. Even if you start with just 3%, the next time you get a raise or pay off a debt you can raise that percent a little bit and in a few years you can get to 10 or 15%.
Don’t be afraid to look at the hole you’ve dug. And stop digging, as MUCH as possible!!! Getting out isn’t always praised – it’s hard, dirty work, but when you’re done or even just started, you’ll feel GREAT! Do it now for the rest of your life.
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