First Things First: A Few Financial Basics
- Create a Financial Calendar
If you don’t trust yourself to remember to pay your quarterly taxes or periodically pull a credit report, think about setting appointment reminders for these important money to-dos in the same way that you would an annual doctor’s visit or car tune-up. A good place to start? Our ultimate financial calendar.
- Check Your Interest Rate
Q: Which loan should you pay off first? A: The one with the highest interest rate. Q: Which savings account should you open? A: The one with the best interest rate. Q: Why does credit card debt give us such a headache? A: Blame it on the compound interest rate. Bottom line here: Paying attention to interest rates will help inform which debt or savings commitments you should focus on.
- Track Your Net Worth
Your net worth—the difference between your assets and debt—is the big-picture number that can tell you where you stand financially. Keep an eye on it, and it can help keep you apprised of the progress you’re making toward your financial goals—or warn you if you’re backsliding.
How to Budget Like a Pro
- Set a Budget, Period
This is the starting point for every other goal in your life. Here’s a checklist for building a knockout personal budget.
- Consider an All-Cash Diet
If you’re consistently overspending, this will break you out of that rut. Don’t believe us? The cash diet changed the lives of these three people. And when this woman went all cash, she realized that it wasn’t as scary as she thought. Really.
- Take a Daily Money Minute
This one comes straight from LearnVest Founder and CEO Alexa von Tobel, who swears by setting aside one minute each day to check on her financial transactions. This 60-second act helps identify problems immediately, keep track of goal progress—and set your spending tone for the rest of the day!
- Allocate at Least 20% of Your Income Toward Financial Priorities
By priorities, we mean building up emergency savings, paying off debt, and padding your retirement nest egg. Seem like a big percentage? Here’s why we love this number.
- Budget About 30% of Your Income for Lifestyle Spending
This includes movies, restaurants, and happy hours—basically, anything that doesn’t cover basic necessities. By abiding by the 30% rule, you can save and splurge at the same time.
How to Get Money Motivated
- Draft a Financial Vision Board
You need motivation to start adopting better money habits, and if you craft a vision board, it can help remind you to stay on track with your financial goals.
- Set Specific Financial Goals
Use numbers and dates, not just words, to describe what you want to accomplish with your money. How much debt do you want to pay off—and when? How much do you want saved, and by what date?
- Adopt a Spending Mantra
Pick out a positive phrase that acts like a mini rule of thumb for how you spend. For example, ask yourself, “Is this [fill in purchase here] better than Bali next year?” or “I only charge items that are $30 or more.”
- Love Yourself
Sure, it may sound corny, but it works. Just ask this author, who paid off $20,000 of debt after realizing that taking control of her finances was a way to value herself.
- Make Bite-Size Money Goals
One study showed that the farther away a goal seems, and the less sure we are about when it will happen, the more likely we are to give up. So in addition to focusing on big goals (say, buying a home), aim to also set smaller, short-term goals along the way that will reap quicker results—like saving some money each week in order to take a trip in six months.
- Banish Toxic Money Thoughts
Hello, self-fulfilling prophecy! If you psych yourself out before you even get started (“I’ll never pay off debt!”), then you’re setting yourself up to fail. So don’t be a fatalist, and switch to more positive mantras.
- Get Your Finances–and Body—in Shape
One study showed that more exercise leads to higher pay because you tend to be more productive after you’ve worked up a sweat. So taking up running may help amp up your financial game. Plus, all the habits and discipline associated with, say, running marathons are also associated with managing your money well.
- Learn How to Savor
Savoring means appreciating what you have now, instead of trying to get happy by acquiring more things.
- Get a Money Buddy
According to one study, friends with similar traits can pick up good habits from each other—and it applies to your money too! So try gathering several friends for regular money lunches, like this woman did, paying off $35,000 of debt in the process.
How to Amp Up Your Earning Potential
- When Negotiating a Salary, Get the Company to Name Figures First
If you give away your current pay from the get-go, you have no way to know if you’re lowballing or highballing. Getting a potential employer to name the figure first means you can then push them higher.
- You Can Negotiate More Than Just Your Salary
Your work hours, official title, maternity and paternity leave, vacation time, and which projects you’ll work on could all be things that a future employer may be willing to negotiate.
- Don’t Assume You Don’t Qualify for Unemployment
At the height of the recent recession, only half of people eligible for unemployment applied for it. Learn the rules of unemployment.
- Make Salary Discussions at Your Current Job About Your Company’s Needs
Your employer doesn’t care whether you want more money for a bigger house—it cares about keeping a good employee. So when negotiating pay or asking for a raise, emphasize the incredible value you bring to the company.
How to Keep Debt at Bay
- Start With Small Debts to Help You Conquer the Big Ones
If you have a mountain of debt, studies show paying off the little debts can give you the confidence to tackle the larger ones. You know, like paying off a modest balance on a department store card before getting to the card with the bigger balance. Of course, we generally recommend chipping away at the card with the highest interest rate, but sometimes psyching yourself up is worth it.
- Don’t Ever Cosign a Loan
If the borrower—your friend, family member, significant other, whoever—misses payments, your credit score will take a plunge, the lender can come after you for the money, and it will likely destroy your relationship. Plus, if the bank is requiring a cosigner, the bank doesn’t trust the person to make the payments. Bonus tip for parents: If you’re asked to cosign a private loan for your college student, first check to see if your kid has maxed out federal loan, grant, and scholarship options.
- Every Student Should Fill Out the FAFSA
Even if you don’t think that you’ll get aid, it doesn’t hurt to fill out the form. That’s because 1.3 million students last year missed out on a Pell Grant—which doesn’t need to be paid back!—because they didn’t fill out the form.
- Always Choose Federal Student Loans Over Private Loans
Federal loans have flexible terms of payment if your employment dreams don’t exactly go according to plan after college. Plus, federal loans typically have better interest rates. So be smart about the loans you take out—and try to avoid these other big student loan mistakes.