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5 simple remedies for your personal finances

Finances are tricky, but with a few simple tips, you can get a better hold on them!

#1: Track Your Spending

Sounds simple enough, right? That’s because it is! So very few people actually do this initial step, and it’s a recipe for a rough financial life. I help friends with finances all the time, and when I ask how much they spend in various categories, they almost never know! Do this single simple task for me for just one month. Track any money that goes in or out of your life. EVERY. SINGLE. PENNY. I mean it; it’s really not complicated. Use a notepad or your phone to track it. My personal finances are more or less 100% digital, so I just log into my bank website and then transfer that data to an Excel sheet to see it all laid out. Feel free to use websites like Mint to do the work for you; just make sure you actually do it!

I put people through this exercise for two major reasons. First, you need a baseline to establish your spending habits. How can you budget or plan for any purchases if you don’t know how much money comes in or out of your life? The second reason is to send a wake-up message. Most people who do this are floored at not only how much they spend on things but on what they actually spend it. I’ve seen friends save over $300/month by just doing this and shoring up any cracks they had that were just seeping cash right from their wallets!

#2: Make a Budget

The tried and true method to all financial advice is to make a budget. It’s a broken record and for good reason. IT WORKS! I don’t want to hear any sort of complaints about how much time it takes, or you don’t know how, or you are bad at math so you can’t make one. Frankly, those excuses are just that – excuses. You can always adjust the budget as time goes on and your life situation changes.

The world of financial nerds has done you a major favor by creating tools like Mint, Personal Capital, or YNAB (You Need A Budget). I personally use the first two as well as a spreadsheet I’ve crafted over the years to pinpoint any and all money in/out of my life. The best part of all – it doesn’t take any time at all. Websites like Mint look at your bank account (read only access so it’s secure!) and track and categorize anything that moves through it. You can setup a budget range on each category, and it will email you if you’re too close for comfort or over. At the end of the month, you can look at nice graphs to show you the data to understand trends and (best of all) which categories are weighing you down.

The bottom line is you need a budget. No ifs, ands, or buts about it. GET. IT. DONE.

#3: Stop the Debt

Debt is a tough subject for many people. Gurus like Dave Ramsey say it’s evil and will destroy your life while others like Robert Kiyosaki will encourage you to utilize it to build your wealth. There are many kinds of debt, but for the most part, debt is never a good thing. The worst type I want to hit is personal debt like credit card debt, car loans, or the worst…payday loans. Debt is a warrant out for your financial arrest. It is an EMERGENCY. Your head is on fire, and it should be treated as such. If you do have large amounts of debt, read a book like Dave Ramsey’s The Total Money Makeover. It’s not gospel by any means, but that man has helped a lot of people get out of debt. I personally not his biggest fan, but I’d be remiss if I didn’t acknowledge what he has done for consumers in debt.

Now how to fix your debt problem? Easy – STOP BUYING THINGS YOU CAN’T AFFORD! By definition, financing is using someone else’s money to get something for yourself. This means you yourself CANNOT AFFORD IT! If you can’t afford it, DON’T BUY IT! Moreover, if you have consumer debt, you should stop buying EVERYTHING outside of things to keep your body alive and your house habitable. That means no more Amazon Prime, Netflix, cable, gym memberships, trips to the store, or coffee breaks at Starbucks. It’s not forever – only until your debt is gone. I promise! Debt is an emergency; I’ll say it until you get it. Every single penny should be thrown at your debt until it’s gone. When one payment is finished, roll every penny from that payment and again anything extra into the next until it’s gone and you’re debt free. It’s been dubbed the “Debt Snowball” as it gains momentum as each debt is knocked out.

#4: Build an Emergency Fund

If you don’t have an emergency fund, you need to get one. Most recommend between 3-6 months’ worth of expenses held in cash or cash equivalents (like a money market account) that is easily accessible for such an issue. If your expenses add up to $2,000/month, you should have somewhere in the neighborhood of $6,000-$12,000 saved in cash based on conventional wisdom. This is really personal preference as I know some folks who have 3 months and others who have more than 12. If a large fund helps them sleep at night and they are okay sacrificing some financial return for peace of mind, it’s a trade worth considering.

I personally operate with multiple. I have a small $1,500 fund for emergencies like a car breakdown or appliance repair and 3 months’ worth of expenses for an unforeseen layoff from work or other personal disaster.

#5: Invest in the Market

Investing scares far too many people, but it’s really not as complicated as the “experts” will lead you to believe. You could read a handful of books and pull down better returns than 95% of Wall Street. In case you don’t believe me, I’ll elaborate. Fidelity did a study a while back of all their investors and compared their returns to see who was performing the best and what they invested in. Who came out on top? It wasn’t a hedge fund manager or an investment firm; it was the investors that were DEAD. You read that right – those that had passed away had better returns than those actively participating in the market because they weren’t actively trading and let their money sit.

Now bare with me while I get into the nitty gritty here (of skip ahead if you’re not interested). Investment managers have one goal – to make money. With that comes the need to keep their clients happy by making them money. Investment managers buy and sell stock on a daily basis in an attempt to get their funds to produce higher returns. The problem is they often buy at inopportune times and charge fees to manage the fund itself costing you even more money. The market on average has historically returned around 7.75% depending on who you ask, so I’ll keep this general. Investment managers on average pull down about 5.75% (or worse) due to the amount of trading and “market timing.” You’d be better off investing in an index fund that tracks the market than going with an investment firm. Not only do they earn you less money but they charge you a portion of your assets for the privilege!

My advice? Go to a site like Vanguard and open an account; it’s free. They have many of the lowest fee-charging funds in the country and perform better than most advisers ever will. I personally put a large amount of my net worth into the index fund VTSAX. It’s a fund that tracks the US S&P 500. The fund itself literally owns a portion of every company in the index. The fund also charges an incredibly low fee of .05% vs. many fund managers that charge over 1%. It may seem trivial, but that amount compounded over your working years up to retirement adds up to hundreds of thousands of dollars. It’s highway robbery!

Bottom line…make a few simple fixes, and you’ll be on your way to financial freedom!

*Note: I’m not a licensed financial adviser, and you should take this advice accordingly. These are my thoughts and my personal practices and cannot be guaranteed. Read a book, and you can do this on your own too!

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2 thoughts on “5 simple remedies for your personal finances

  1. I love this post, Jodi! This is literally the Exact same advice I give friends when they ask ‘how we do it’. I’ve got several blog post drafts started just have never taken the time to get one going, so good for you! I’m enjoying reading your various posts.

    1. Thanks, Bailey! I actually didn’t write this one, though. I have a friend who will be guest blogging on all of the financial topics.

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