My 4 Favorite Pieces of Financial Advice E-V-E-R.
Every now and then a friend or two will ask me for my best financial advice, and while I wished I could refer them to a single post of mine, unfortunately I never could....until today!This post encapsulates my all-time favorite "words of wisdom", jotted down in one simple place.
There's a bazillian of things I'd love to share with everyone, but there are 4 main biggies I repeat over and over again - whether on this blog, or when talking to friends, family, or strangers. They aren't new, but they sure do work! And I follow each and every one of them personally, even if I do slip at times ;)
I truly believe that these will improve anyone's finances, regardless of age, occupation, or net worth. Your wallet will thank you, your peace of mind will thank you, and you'll find yourself feeling sexier than ever! So here they are - my all-time favorite pieces of advice:
1. Pump up your 401(k)
If your company offers it, jump in as hard and as fast as you can! Contribute AT LEAST as much as your employer matches. if they match 100% of 6% invested, invest 6%. If they match 25% of 3%, invest 3%. Whatever the case may be, their portion is FREE money baby! Aka 100% guaranteed profit before it even gets invested! And if you have the means to put even more in? Then you, my friend, qualify for the Bad A$$ of the year award ;)Not only that, but Uncle Sam will hate you for it... at least for now (that's a good thing). The more you invest, the fewer taxes you pay out that year. Say your annual gross income is $50k. Well, if you don't put anything in at all, you pay taxes on that $50k. BUT, say you contribute $10k towards your 401(k) in that year, well now you're only taxed on $40k! (you pay the taxes later) So yeah it may suck initially "being out" of a little money each paycheck, but over time you'll get used to it and maybe even forget since it's all automated. Either way, those amounts pile up BIG time over the years, and you'll be thankful you jumped on this money train when you did!
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*if your company doesn't offer a 401(k), OR they don't match, consider picking up a Roth or Traditional IRA instead (or in addition to). There's a pretty cool breakdown of the differences and benefits here
2. Track your spending for 3 months
This is the one thing you can do to learn EXACTLY where your hard-earned money goes to. Think of it as an E-True Hollywood Story based on Your Financial Life - you think you know, but you have noooo idea! haha...okay, well maybe it's not that drastic, but you'd be amazed at the things you'd find if you actually sat down and sorted through it all. Even if you do it just one time, and one time only, it'll give you a better over all picture of your finances.Once you know EXACTLY how much you spend, you can then figure out how to move forward - whether it's to remain on the same route you're currently taking, or move to a newer one. I went back through 3 months of checking and credit card statements to figure out my habits, and boy was i surprised! It wasn't so much in seeing the items purchased, as I remembered them all, but it was the grand total of the expenditures that hit me. I had a guestimated a budget of $500 for my credit card each month, but in reality i was spending between $800-$1200! Woops. I then created a more realistic budget ;)
3. Create an Emergency Fund
Simply for a great peace of mind! There's something to be said in having a pile of cash in your account for whatever it is you'll need it for. I really don't know what constitutes an emergency, exactly, but for me it's more of a stash to keep myself out of trouble ;) As for how much to put in there, I personally shoot for 3 months, but it really depends on what you're comfortable with. It can be 2, 3, even 6 months, whatever you feel would make you sleep better at night. Once you reach that point, you're all set! You can then go about using your money as you wish, knowing you have that safety net.4. Pay off all Bad Debt
Get rid of it! Whether it's credit cards, outstanding loans to friends or family, or whatever - it's not great to have. This is much easier said than done, of course, but my goodness if it's not true. It effects everything from credit scores, mortgage rates, car loans, and even worst - your overall happiness :( What would you do if you had $0.00 in debt?! How insanely awesome would you feel! It's not gonna happen overnight, and it certainly won't be easy, but it's definitely imperative to work it all out. Whatever you need to get rid of it, just start.And that's it! Those are my Top 4 all-time favorite pieces of advice I give out. Some are easier to follow than others, but they all work magic on your financial health!
Labels: 401k, advice, budgets, debt, emergency funds
posted by J. Money at
11:49 AM
22 Comments:
GREAT post, J! I am happy to say that I can finally answer your question, “What would you do if you had $0.00 in debt?!” Well, comment about it on Budgets are Sexy, of course :) As of today that’s where I’m at. And I can sure tell you that it does feel insanely awesome. Reading through your 4 tips made me realize even more how far I’ve come. I am contributing to my 401K and getting my employer’s maximum match, I track all of my spending and have a budget in Excel, my emergency fund is on its way at around $1000, and I’m debt FREE!
I wasn’t doing ANY of your tips 4 years ago when I started this journey. I’ve come a long way, baby and reading your blog (and others like it) has inspired me to keep going. And now that I am without debt, I’m going to keep reading to help me figure out what to tackle next.
Hi J. Money,
This is a great list. Since I started my PF blog and reading others like yours, I started do several things on the list. #2 and #3 are done. I need tow ork on #1 and #4. I have started to pay off debt, I'm chipping away. I also started looking into IRAs and hope to start one by the end of the year.
Damn girls, congratulations! That is amazing, i'm so proud of you :) Perhaps now it's time to learn more about investments?
I think that's what i would put down as my #5 - or at least something along those lines. Being able to sort through all the garbage and find great stocks and mutual funds out there is a killer way to keep that net worth growing.
But for now i concentrate on the Top 4, just like you all! Congrats again :)
Great post.
For the 401k piece, what is your take if the company doesn't match at all?
I've been told 401k funds are fee-laden and not generally the most desirable, and an IRA is a much better vehicle.
Any thoughts?
THANKS
Thanks Michael! And you bring up a good question that i actually forgot to mention in the post :)
If your employer doesn't offer a 401k program (or a similar one like 403b plans for public education and sometimes non-profit orgs), I'd shoot for a Roth or Traditional IRA.
I, personally, like the benefits of the Roth (all earnings on contributions are tax-free!), but others like the up front tax benefits of the Traditional IRAs.
Either way, they're all great retirement tools for us to use :)
Oops, i misread your question! Although my answer may still be the same - set up a Roth or Traditional IRA and use that as your main retirement fund.
The only problem is you can only max it out at $5,000 this year (if 49 and under and you qualify), so i'd max it out first, and THEN put the rest into your 401k plan as that one can be used up to 15.5k this year.
But if you think it's too much work opening up other accounts here and there, and you might not follow through, then i say stick w/ the 401k 100% since it's automated and you can set it up and just forget about it.
As long as you're investing SOMETHING for retirement, you're that much better off :)
Couldn't have said it better myself. A 5th one I would add is to never stop reading and learning about all things finance.
A great list, and I'm sad to say I'm failing woefully at all 4 :-( But I'm working on it.
My employer falls into another category with 401k. They do offer a 401k, but do not match. They do, however, add a percentage of your annual salary, based on profit for the year. For those who don't max out the allowable contribution, it actually works out better.
Love your blog, by the way.
Great advice! I am currently working on 3 & 4, I never tracked my spending for 3 months, I think I'll go back and do that. Also I'm hoping we can raise our 401K contributions soon because my husbands company does match up to 6%
Great article. Can I add one more gem? Buy less house than you need. The more mortage-strapped you become, the less able you will be to take advantage of other investment opportunities that come your way.
Honestly, I just like the name of this blog. Budgets are sexy. I don't know about you, but personal finance and responsibility turns me on. I like this post because it's practical and true. "Pump your 401 (k)," "track your spending for three months," "create an emergency fund," "pay off all bad debt". I don't buy the whole the "good debt" v. "bad debt" thing because all debt is horrid. That being said, this is sound advice that I'm taking for myself right now. I like this blog, it's pretty!
Kimmy B. "The Prosperity Blogger"
http://www.prosperityblogger.wordpress.com
Agreed, all of those pointers are def. good to add:
- never stop reading and learning about all things finance.
- Buy less house than you need (oh hell yeah)
Glad you all like the site randomprattle & CommonCents :) Thx for stopping by!
best spelling advice ever... don't rely on just the spell-checker... replace the word "mess" with "less" in sentence, "The more you invest, the mess taxes you pay out that year."
haha, good catch! to be honest i don't even use spell checker (shocking, i know)...while it would be great to be grammatically correct & error-free, it would take me double the time to get out a post ;)
Actually, the correct phrasing is fewer taxes, not less....
Really love your blog, btw. :)
ooooooh look at you! haha, nicely played :) i went ahead and updated it now. thanks for poppin' in and reading! really appreciate it.
I've read a few posts and am saving the blog!
Wonderful! going to check out your site right now...
Add #5 to the list, don't buy anything you can't pay for in cash, that is excepting a house or a car.
I like that. Hard to do sometimes, but very smart if you can pull it off :)
Fantastic, simple advice that everybody should consider. The 3 month expenses tracking idea is critical. Not only does it give you a clear picture, but it establishes sound habits.
Yup, and once you get 'er up and running the first time, it's 90% faster to keep track of going forward ;) I spend about 20 mins a month updating it and evaluating what worked, and what didn't, and then I'm good 'till the next month! Super easy and super fast. And of course, super GOOD thing to do.
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