Pro Tips: a new series on Joy the Baker wherein I ask my expert friends loads of questions about their field and get the nitty gritty for all of us.
This week I talk to my friend Jessi, a financial planner in Kansas City, MO.
My hope is that this inspires you to find power in how you deal with your money. I ask the questions and Jessi drops the knowledge, below.
How can people approach money in three different decades of life, the 20’s, 30’s and 40’s?
The 20’s are for building and establishing habits. It’s about recognizing your relationship to money. Maybe you’re scared of it . Maybe you have your head in the sand about it. Your 20’s are a time to get directionally correct and establish solid financial habits for yourself.
Think: How do you respond to money? Are you a spender or a saver?
If you don’t define this in your 20’s you’re not totally screwed… it’s just a good time to start.
Here are three tips to establish solid habits early:
- Have cash in the bank. We’re talking about an emergency fund, which is totally boring and zero fun. Give yourself a goal. Start by saving $1000 in 6 months. Consider using a high-interest saving account like Capital One 360.
- Stop living outside your means. No one likes hearing this. Stop spending more money than you make. Pay attention.
- Don’t buy things you can’t afford. For example, don’t over utilize alluring no-interest credit lines for things you can’t actually afford.
The 30’s are for getting your stuff together. Time to adult! The 30’s are a time to get a solid sense of your long-term and short-term goals.
- Definitely start a retirement plan.
- Have an emergency reserve of 3 to 6 months of expenses. This mean that you have to have a clear view on what your expenses are. Think: What is the risk I’m trying to manage with this savings. The loss of a job or a health emergency? What amount of money do you need to manage that risk?
- What do you want to purchase in the next one to two years (a house? a new car? an amazing vacation?)? Identify and make a savings plan for it!
The 40’s are about your earning potential. Make sure you’re at the top of your earning potential in order to maximize your savings potential and give your investments enough time to sit and accrue before using them. If you’ve had children, your expenses are really high, because human children are expensive and this is a time when your income really matters in order to keep you on track for retirement.
The deal is, do your best at every stage. Just do your best. Good financial habits are not something you can just get around to when you feel like it.
How do you save when you’re on a tight budget?
Adjust your expenses. Making hard choices. Commit to a monthly savings (no matter how humble) into a high-interest savings account.
Think: Am I living somewhere (house or city) that I can’t afford? Housing is people’s biggest expense. We get caught up in the idea of wherever I land is where I stay. Don’t be afraid to get creative.
Think about what you’re trying to accomplish with your saving. Identify your priority and save.
How do you save when you have a surplus of funds?
A windfall of money should be tied to a goal. Something that matters to you. Tie a surplus of dollars to a goal and you’re more likely to save it and enjoy the benefits.
How to you save with an erratic / freelance income?
Set up a system for yourself where you pay yourself a consistent amount from an account that houses your erratic / freelance income.
When should you hire a financial planner?
Hire a financial planner now! It’s important to know that you don’t have to clean up your finances in order to start the process. Typically people start working with a planner when they’re in a life transition, but no matter where you are, start now. A good financial planner will look at your finances, listen to your goals, and help you make good decisions for yourself.
Your financial life does not have to be put on auto pilot or do what everyone else is doing. Don’t get caught up in the fallacy of peer pressure. Find a planner that’s willing to listen to your real life goals and do it.
Recourses:
Making Life Count– advice and recourses.
XY Planning Network– financial planners for Gen X and Gen Y. Is that us?
Mint.com– helps organize all of your finances in one place, easily… and you can build in budgets and goals!
Book: Happy Money: The science of happier spending
Book: The Opposite of Spoiled: Raising kids who are grounded, generous, and smart about money
Let’s Make A Plan!– what’s your goal?
Planner Search– find the right planner for you.
Preparing for your first meeting with a financial planner– know what to bring and what to ask.
Acorns: invest spare change I (Joy) just started this, myself! We’ll see!
sassygirl
i would add that contacting a fiduciary
financial planner, with the emphasis on
FIDUCIARY, is extremely important.
why? because they have your interests,
and yours alone, NOT the investment firm/
bank/financial services group’s bottom line.
also, start earlier than you think you should.
ask parents, grandparents, older relatives
if they wish they had saved up more. bet the
answer is always yes.
Ross Caruso
Knowing where your money is going and keeping an eye on the input vs output has always helped me! Just trying to build the right habits!
Amanda Drew
I like your suggestion to tie any large amounts of money to a specific goal because then you’re more likely to save it. My husband and I have been married for about three years now, and we were thinking that we should start thinking about the future. We’ll have to follow your advice and probably find a professional to help us start planning for our retirement.
Sutton Turner
I like how you said that your thirties are for getting your stuff together and your forties are for earning your potential. We are going to a broker for financial planning. Thanks for the tips for planning for your finances.
Joy Butler
I really appreciate you helping me learn more about financial planning. I just did love when you give us the tips on what we should have by age! Sharing this information inspires us to make a financial habit of a good outcome, thanks!
Larry Weaver
Thanks for the advice to start a retirement plan in your 30’s, as well as having an emergency reserve with a clear view of expenses. I would like to start doing financial planning better so that I am prepared for the future and potential emergencies. Perhaps working with a professional in financial planning would be a good way for me to start taking care of my finances in a smarter manner.
Silas Knight
Thanks for the great financial planning tips. I like how you said that the 30’s are for starting a retirement plan, and getting things all together. My wife and I definitely don’t have all of that, so we need to get started. Would you suggest talking to a professional?
Julie
I just finished reading the book Millionaire Teacher and wow! I learned so much about investing. Everyone should read it. And the bottom line is that you should NOT ask financial advisors to help you invest your money because they get paid by convincing you to invest in mutual funds when index funds are a way better option. Skip the financial planner and go read a book. Guarantee it will be more beneficial.
Heather
Defining your financial planning by each decade of your life is a great way to keep up with your financial health and progress. Great tips!
Katie Fitzpatrick
Such important information that they just don’t teach you in school! I love that you incorporated this into your food blog! Every audience needs to hear it, even though its painful to realize you fall into the spender category :) oops
I really enjoy the Pro Tips articles. Thanks for sharing.
culinaryrapsnyc
Digit is really cool app. w/e you spend it saves weekly i believe. So it rounds up if I’m correct and puts it in a saving account. it communicates with you through texts and now they have a app. But I enjoy not physically seeing my money.
Kate
Thanks for doing something a bit different Joy, its got me thinking! Up until I became freelance last year I used to be really good with money and stuck to a relatively strict budget, but now I never quite feel like I know where I stand with my money. I’m definitely going to try to pay myself a monthly income and stick to it. Wish me luck!
Sarah Katherine Moore
From a regular reader whose internet has been down so just saw this. Three very important things to think about: 1) Commit to a monthly savings (no matter how humble) into a high-interest savings account. You cannot get a high interest savings account with humble monthly savings. Does not happen. Anywhere. But start anyway and then roll them over into one with better interest rates. Banks are not your friend! Try credit unions for this. 2) Windfall? You’d better be thinking really hard about strategies to reduce your income taxes which will (really) quickly eat up everything the “wind” just let “fall” on you. And 3) this wasn’t mentioned at all: have your will done. If you are earning enough to put you into THAT tax bracket then have everything put into a trust. Trust me. I am an estate planning paralegal who deals with many, many financial planners and investment advisors. The three-word moral of the story about money? PROTECT! PROTECT!! PROTECT!!!
Becs
I am currently in the process of looking to buy my first home. One thing that I found out recently is that if you split you monthly payment into bi-weekly or weekly payments, you will save a lot of money on the total interest. By splitting your monthly payment in half and paying twice a month, you will save yourself from accumulating two weeks worth of interest on half your mortgage payment each month. When I calculated doing that on a $240k home with a 10% down payment, you would end up saving around $20k in total interest and paying off your mortgage 4 years early!!! And you still pay the same total amount each month! I was so excited about that I had to share!
Sienna
Thanks for this! I just moved to a new country and I’m about to start a new job. This gave me the kick in the bum I needed to recalibrate my budget (and also get some budgeting software).
Sally (@apinchofsally)
I. LOVE. THIS. Seriously so helpful. I’ve been putting off setting up a Roth IRA & savings accounts, etc. because I just feel so out of the loop with all the financial terminology and such. But this has definitely been a kick in the butt to start researching & educating myself in it because it’s soo important. Also ps your commenters are SUPER helpful. Props on wrangling in a good bunch of blog readers!
Cassie Sue
If I say I’m “broke” it just means I’ve reached my budget and have to wait until the opportunity for some fun money to pop back into my budget. But it doesn’t mean I don’t have savings or other enough money for rent.
A friend called me one day and says “want to go to this expensive place for dinner?” to which I replied “can’t, I’m broke!” and she goes “me too, Dad just bailed me out and gave me some extra cash so I want to go out”. I told her maybe some other time and then was so thankful that I learned to keep a budget so I don’t have to ask my parents for money.
Long story short, I just wanted to say being an “adult” sucks when all your friends are having fun and you’re keeping your budget in order… but it feels really nice to know that you are doing it on your own and not still dependent on your parents. So great article!!
Any recommendations for high interest savings accounts?
Tisha
I use Synchrony Bank. https://www.synchronybank.com/banking/products/high-yield-saving/?UISCode=0000000
The rate is higher than the Capitol One 360 that Joy linked to in the article (1.05% APY vs 0.75% APY).
Sher
Thank you for sharing this wonderful advice! Great job, Jess. She is my niece ????
Mona
There’s a great app called Qapital that helps you create rules and then automatically transfers money for saving/debt reduction. It’s free and so far has saved me $1000 without my thinking about it.
joythebaker
That’s fantastic!
QBpro Ca
Hey Mona,
This really sounds like an awesome app. Thanks for sharing it here.
Lizzie
I just reconciled our checking account this morning and tried not to hyperventilate, so this is a helpful overview for the big-picture and not just the “crap we’re over budget by $50.” Also, shoutout to YNAB (You Need A Budget), the best budgeting software I’ve tried yet–nice interface, mobile app, varying levels of sophistication depending on where you are in your budget mastery (or lack thereof). That said, it doesn’t stop you from overspending…it just makes it obvious when you are! ;)
joythebaker
Big picture Big picture! And yes, thank you for mention YNAB! I use Mint, myself… but YNAB I’ve heard people have success with.
Emily @ Relishments
Totally obsessed with YNAB here too! We’ve been using it for over a year and our funds are growing, I’ve paid off a student loan and we’ve got lots of money saved for various upcoming expenses like Christmas gifts, vacations and our mortgage. Highly recommended
Adrianna from A Cozy Kitchen
I’m am so psychotic about living way below my means because money stresses me out so much. I’m definitely one of those people where money scares me so instead of having a plan, I just hoard. This has definitely pushed me to seek out a financial planner so I know what I’m doing. WHY DONT THEY TEACH THIS SHIT IN SCHOOLS!
joythebaker
Yes, girl! Get you a financial planner! It really changes the game!
Marisa
Overall good points and love to see this discussed on a blog that normally discuss finances, but I’d move a lot of the things for your 30s into your 20s, particularly starting retirement savings and building up a bigger emergency fund. 1K is a good start (and what Dave Ramsay recommends to people coming out of debt), but you should be striving for 3-6 months as soon as you can as you could easily blow through 1K on one emergency.
Investing in retirement (even a small amount) is also very important in your 20s as it gives the money even more time to grow. Additionally, if your employer offers a match on a 401k, that’s free money you could be missing out on. There’s a great chart in this article that shows that Susan who invests 5K yearly from 25-35 ends up with more money at retirement than Bill who invests 5K yearly from 35-65: http://www.businessinsider.com/amazing-power-of-compound-interest-2014-7. It’s really important to give money time to compound and get into the habit of setting aside a little bit fore retirement, even in your 20s (there are tax benefits too!).
There’s a great infographic about how to prioritize finances: https://i.imgur.com/fb7Dtmh.png. It prioritizes 3-6 months of emergency fund (so you can avoid more debt), employer match on 401k, paying down debt, investing in retirement, then saving for other goals.
It’s explained in detail here: https://www.reddit.com/r/personalfinance/wiki/commontopics
There’s also an excellent book by William Bernstein called If You Can: How Millenials Can Get Rich Slowly. It’s only 8 pages long and gives a decent summary of how to set yourself up for the future financial security/retirement: https://www.etf.com/docs/IfYouCan.pdf
I could talk FOREVER about finances, but I’ll leave it here.
joythebaker
Good thoughts! Thank you for adding to the conversation! That employer matched 401k sounds like I dream and Jessi mentioned it but I somehow forgot to mention it here.
Marisa
Yeah, it’s definitely not something everyone has (especially as freelancers). But if one does have it, it’s best to take advantage of the match as it’s free money! The only time I’d say not to would be if one is in really high interest debt.
Jessy @ The Life Jolie
Yes to all of this. The only thing I would change is start saving for retirement in your 20’s not 30’s (and never, EVER touch it). The growth potential with compounding interest is much larger the earlier you start.
Briel K.
I like this new series! Rent in San Diego is no joke. Wondering how long I’ll be able to live here at this rate.
Angela
This is rad. Thanks for posting.
searedandshameless
definitely needed this advice today. Thanks Joy!
https://www.searedandshameless.com
Abby
I’m swearing off financial advice until my husband finishes school and rejoins the labor market LOL. One more year…
Ana Carmen Savo
Muy buen post válido para cualquier parte del Mundo. Gracias Joy.
Jeannette
well good morning to me in the form of a giant slap in the face. I’ve been dipping into my savings to pay for tuition and bigger bills and using it as an excuse to keep spending. and decided that I needed to stop that. and then this weekend i managed to go out and buy a kate spade purse. in the words of danny glover: i’m too old for this $h!t. time to stop impulse buying nonsense that i don’t actually NEED and putting more money into my savings and keeping it there. setting my goal: save $3,000 before the year is over! i’m heading to my bank website to set up the auto-transfer now! the challenge will be not touching it!! jessi and joy, you have inspired me. thank you for sharing this “jeannette, it’s time to adult” post, even though it’s the last thing i wanted to read (but life isn’t always about what you want, it’s about what you need!)
joythebaker
I swear once those automatic withdraws go out you’ll forget they’re there.
katy
that’s exactly right! Speaking from the other side (I’m in my 60’s), I have to say I’m so grateful to a manager who told me to sign up for our 401k program at work & just let them take a small percent of my check out every week. And I never thought about it, except when I saw the statements and the amount growing. I was young & single, making good money, and I never would have saved that money on my own. Years later, I have a big chunk of money saved, enough to take care of me. It’s amazing. Very little effort and it will pay off big for you later on – do it!
Lori
Love this post. Acorn sounds interesting! Looking forward to digging through some of this links this week. Thanks, Joy!
alittlekiran
Great post! I definitely need to take into account what I spend my money on and need to tone it down madly xxx
AlLittleKiran | Bloglovin
Lottie Gibbons
I like pretty things though!! Haha no I really love this post, I would definitely define myself as a spender and as I am coming up to my twenties…. its definitely a worrying thought! Great tips x
http://www.flareaforte.com
joythebaker
I like pretty things, too. I understand.
francetaste
Good points. I would add: live in the smallest, cheapest place you can stand. Housing is most people’s biggest single expense. It has knock-on expenses as well: more space means more maintenance, heating and A/C, furniture, etc. A bigger yard takes more water, more gas/electricity to mow, more fertilizer, etc. All the money you sink into something that’s bigger because it’s what your friends/family pressure you to keep up with, that’s money you aren’t spending on other things (paying student debt or traveling) and money you’re more or less locked into if your income goes down.
TnT
Agree with paying attention to your housing and money spend there. But – your accommodation should be more than just the place you can stand. In the longer run it is important that you feel good while being at your place and that you want to spend time there alone and with others. Otherwise you will be eating out / socializing out / using every excuse to leave the place and that will add to your expenses quickly.
francetaste
Or traveling. But it’s easier to feather a small nest than a big one. My parents raised four kids in a 3BR, 1100 sq ft house. It was average for the time. But that is a small house today.
joythebaker
Feather a small nest. :)