Sound money management–also called financial management–can be difficult, but is an important foundation for financial security, safety, and less stress in your life. Effective money management using these money tips can help you on your path to financial independence.
When you first leave home and embark on your own, it can be difficult to figure out how to make your money work for you. Independent living is challenging at first because up until now you likely had a parent managing the household expenses.
Whether you come from a family without money to make ends meet or a family that did not teach basic personal finance, there are a few things that you need to know.
In this article, I outline basic information about financial needs that are foundational to stability in your life.
Money Tip #1: Don’t spend all your money, ever.
When I was younger, I heard people say things like “I had an extra $600 in my bank account so I decided to go to Mexico and signed up for a week long program.”
Back then, I thought: wow! that is amazing! you are so in the moment and living for the now. you’re living life to its fullest.
Now, I look back and think: that person was maybe not so good at managing their finances. They might be a little self-destructive and putting themselves in a financially precarious position. I don’t really think the latter, but I do think they were not very future oriented.
Saving money is important because you don’t know what is going to happen next. This is why so many financial advice columns say: live below your means.
Money Tip #2: Think about future expenses, especially unplanned ones.
I grew up without anyone I could depend on. This meant if I had an emergency expense it was up to me to figure out how I was going to pay for it.
Thankfully growing up in a pseudo poor household taught me the importance of saving money. I am thankful to my grandfather for teaching me about “mad money” which meant to always have an emergency stash on you. I have never had to use an emergency stash of money but having it gave me confidence in myself.
Planning for the future does not mean saving all your money. You still want to enjoy yourself, but you need to manage those funds in a way that allows you to store a little away.
Money Tip #3: Know where you are spending your money.
A lot of financial advice and money management columns will tell you to budget your money. That seems a bit… old school.
You do want to budget, but as a term it seems very rigid and structured.
Mostly, you want to know where you money is going. If you do not know where your money is going, it will be difficult to achieve financial independence. Have an estimate of how much money you spend on food each week or month.
For me, I minimize the amount I spend on non-essentials. Thing means things like clothing, beauty products, and recreational activities that cost money (outside of my main hobby).
Know how much you spend on dining out, going to movies, and other activities. Think about what the important stuff is and which are things that are extras.
For me, financial independence is not about not being dependent on a job. Instead, financial independence means I am not reliant on others when shit happens.
Sometimes you need self care. So treat yourself! Treat yourself is a luxury and as such should be done sparingly. Know the difference between when you need to spend copious amounts of money on yourself and when you are just doing it to do it.
Money Tip #4: Be conscious about your purchases.
Something people like to buy fancy stuff. In certain cultures appearances are everything. Having the best car or designer clothing might seem like a necessity, but it depends on what your goals are and who you find it important to impress.
Personally, I do not hang out with people who adore designer handbags or luxury cars. I am not impressed by those things. If I am going to be financially independence, I can do it with my reasonably priced yet stylish clothes and my affordable car payment.
You have to spend money to make money, but not that way.
I am impressed by free spirits. Us free spirits also need to manage our finances effectively if we are to get what we want in the world.
While free spirits might not be into designer or luxury commodities, they do enjoy fancy coffees or fresh pressed juices or other luxury food and clothing items that appear to their niche in society. For example, being vegan doesn’t have to be expensive.
What does it mean to be conscious of your purchases? It means assessing whether you want something just because or whether you actually want it in a need sort of way. Let me explain…
I often spend a great deal of time evaluating if I want to buy a perfume.
I have no need for perfume, but I also recognize that certain luxury items are viewed positively in a business or professional context. Perfumes and jewelry are two of those things.
To buy consciously might mean asking: does the cheap Arm and Hammer super fragranced laundry detergent give a positive impression or negative impression in my office? Do I want my luxury perfume on top of that fragrance or is it better to smell that lovely luxury fragrance pure and on its own.
Here, we are getting into some details about fragrances. Personally I hate commercial fragrances so I buy fragrance free. This is at least in part because I want to smell like the fragrances in my fancier beauty products.
There is a professional and a financial quality to this evaluation. They go hand in hand.
Money Tip #5: Learn about credit cards.
The worst thing you can do is use credit cards, max them out, then only pay the minimum.
It is easy for credit cards to get out of control. Credit card debt can spiral quickly.
The most important advice when it comes to credit cards is to try to pay off as much as you can, preferably in full, each month. In full with a credit card means the amount that shows up on the bill. When you log in to your account, the statement balance is the amount you want to pay in full. The current balance reflects charges that have been made since the statement balance was issued by the credit card company.
Choose a credit card with a low APR. “Good” APRs are below 15% each month.
Interest adds up quickly, and compounds. That means less money in your pocket month after month.
Credit cards are the devils tool. If you cannot pay them off, you should avoid using them. At the same time, you want to take advantage of their offers for 0% interest (if and when you need it) and cash back. I recently found out about the Fidelity Visa, which can be used to automatically invest and gives 2% cash back into your investment account.
Money Tip #6: Avoid fees.
Fees often accompany carrying a balance on your card.
Avoid using balance transfers unless you have already gotten out of control with your credit card debt. In which case, open a 0% APR card and use those month that have no interest to pay it off.
Pay attention to the terms. How long is the card 0% APR? What is the limit? How much cash back can you get?
By the way, never get cash back from your credit card. The fees are outrageous.
Know that you can typically call and get a credit card company to waive a late fee once per year. Use it.
There are fees on all sorts of financial transactions. Avoid them. Pay cash if you have to.
Some smaller eateries charge a fee for using a credit card because that is what companies charge them. In one of my regular restaurants that fee is 5% which adds up when you are a regular. It might seem like a small sum, but over time it adds up.
Over extending you bank account–i.e. attempting to spend more money than you have–will result in fees. Avoid them by telling the bank not to allow you to do this. The same goes for your credit card. You can tell the company not to allow you to charge more than your limit. Some cards allow you to go over then assess a $50 fee.
Don’t let fees get in the way of your financial independence.
Money Tip #7: Max out your employer retirement match.
Your employer will likely provide a match to a retirement account. I did not do this for several years in my career. What a mistake! Don’t be like me. Max out that retirement contribution match from your employer immediately.
Do the calculation. If you make $50,000 and your employer matches up to 7%, that means you are contributing 7% untaxed income and you employer is also. That amounts to $3500 from you and $3500 from your employer. That means your salary is $3500 larger than if you didn’t contribute to a retirement account and it is going into an interest bearing account for the long term where it will earn compound interest.
Money Tip #8: Build a support or foundation fund for yourself.
You want to save up a few thousand dollars to have on hand at all times. Do this as an individual, independent of any other family members, partners, or friends.
Every individual adult is entitled to a separate account with a minimum of $3000 at all times. Ideally you begin building up this fund in your youth.
For women, this is an especially important thing to do. We live in a world where men are controlling. Some more than others.
Even if you have a supportive man now, that does not mean you will have a supportive man in the future. Things happen. Shit happens.
I trust my partner with every fiber of my being. But at no point will all my money in my independent personal bank account ever be combined with his.
There are many reasons for this and many that have nothing to do with my partner. Trust me. This is extremely important.
Some people might call this an emergency fund, but it is a step below the emergency fund. That comes after the foundation fund. Everyone should have a foundation fund or be working toward one. Only then do you start building your emergency fund.
Money Tip # 9: Stay humble.
Donations are important in keeping us humble. Remembering we are human is difficult when we are caught up in the chase for money, wealth, and the possibility of retirement.
We spend a lot of time working and it can make us bitter. Staying humble means giving money away freely and without judgement.
Do not judge the alcoholic or drug addict on the corner, homeless and unbathed. They are going through a lot and have not been comfortable in quite some time. Many have experienced traumas much more extreme than our own.
We all have different abilities to deal with stress. We all have different capacities and knowledge. So stay humble.
This is not a question of right and wrong or lazy and hard working. It is a question of your humanity and theirs.
Give freely in the name of humanity.
Knowing how to effectively manage your finances without making your life sad and miserable is important to building self confidence. Most of us have to work to make ends meet.
Financial independence is for privileged people who have connections, support networks, good high quality educations in industries useful to those born with money, and an ability to navigate those social spaces. Folks who can navigate these difficult spaces are amazing.
Most of us do not have this luxury. And thats ok!
You can build wealth without financial independence. Aspiring for financial independence is a great goal, but some of us may never achieve that. If you can and do, let us know. We’d love to hear about it.
For the rest of us, you can prepare for the future and live in reality. You are amazing and we can build our own community and use our own creativity to find ways to build financial security for ourselves and our communities.