Best financial advice you will ever receive

It seems, nowadays, that financial advice is a dime a dozen. Everyone seems to have an opinion and everyone says something different.

What advice can you trust? Should you seek out an expert with 5-10 professional designations after his/her name? Should you read blogs? Listen to podcasts?

Let me tell you something, you will get bombarded with advice from now until the end of time. Some of it you’ll agree with and some of it will just plain drive you crazy.

So what advice should you listen to? Here is a long list of the best financial advice out there.

Create a budget

I’ve written about budgets, at length, on the blog before, so what you need to know is this:

  • Write down all of the expenses you have in a given month. Housing, transportation, food, utilities, cable/internet, debt, savings and other bills. This is necessary spending.
  • Next, write down a number you don’t have a problem spending on “fun stuff.” Nights out, take-out, entertainment, etc.
  • Add up those expenses, and compare that total to how much you make per month. The difference between your income and your expenses will give you a good picture as to what you need to cut back on, or where you have wiggle room. (P.S. If you have wiggle room, pay down debt or save for retirement)

To learn more about creating a budget, click here.

Track Expenses

This practice will show you where your money is going and how much is being spent. Start this month and also track your spending from the last few months, as well.

Break your spending down into categories. (Housing, transportation, utilities, food (from the grocery store), entertainment, eating out, health, insurance, etc, etc.)

It will be obvious where you should cut down your spending (i.e. take-out) and where you have room to spend more (i.e. paying down debt/saving for retirement).

Take advantage of workplace retirement plan

If you work for a company, or yourself for that matter, contribute to their retirement plan. This is a very easy way to get started.

Do what you can to contribute at least 10% of your paycheck to this retirement account.

If you can contribute more, contribute more. If you need to contribute less, contribute less. Just make sure you are contributing enough to receive the company match. Missing that match is flushing money down the toilet.

Along those same lines, if you receive a raise from this company, bump up your contributions for the amount of your raise. You got by without that extra money, so put it to good use.

Pay yourself first

Whether you are saving money for retirement, emergencies, or short-term goals, do it on the 1st of the month. If you do this right away, you don’t have the chance to spend it.

Save first, and then spend what’s left over.

Start off small

If money is tight, begin saving a small amount. If you save to your retirement plan at work, start with 1% of your paycheck.

If you’re saving for emergencies, start with $5 per month.

Once you have gone through a few months at this level and are used to that extra 1% or $5 not being there, bump up your savings. For retirement, go to 2%. For emergencies, go to $10.

Every little bit helps, and those small increases over a lifetime will do amazing things for your financial health.

Start early

One of the most common themes in financial advice is the power of compounding.

Look at the chart below as a reference to how much compound interest helps your nest egg.

compound-interest-example

Start as early as you can to take advantage of compound interest.

Save for emergencies

Set money aside each month, or each week, for emergencies. Expert advice is to save 3-6 months worth of expenses. If someone loses their job, it takes them, on average, 3-6 months to get another job.

An emergency fund is also a great place to go to for unexpected expenses. If your car breaks down or your furnace needs to be replaced, you pay for it with your emergency fund so your normal monthly budget doesn’t get wrecked.

Invest for long-term

When you’re saving and investing for retirement, think long-term. The stock market will fluctuate over the years.

Don’t worry about short-term volatility because over the long-term the market will grow and so will your retirement account.

Save regularly and you will be just fine.

Minimize fees

With regard to investments and your retirement account, keep the fees to a minimum. When you choose your investments and who manages it, seek out low-cost options.

Invest in low-cost index funds and pick managers that charge low fees. An added bonus is to choose an advisor that is fee-only. If they are fee-only, odds are they are a fiduciary, which means they have to act in your best interest, LEGALLY.

Another option is to take advantage of the various fintech companies that do it for you (i.e. Betterment, Stash, etc.)

Get out of debt

Debt is a pain in the butt. It forces you to dedicate money towards paying it off instead of saving for retirement. Do what you can to get out of debt.

If you have credit card debt:

  • Snowball method – Pay as much as you can towards your lowest balance. Pay the minimum towards all of your other debts. Once your lowest balance is paid off, transfer the money you were paying towards that debt to the next lowest balance.
  • Avalanche method – Pay as much as you can towards your debt with the highest interest rate. Pay the minimum to all of your other debts. Once the debt with the highest rate is paid, redirect that money towards the card with the next highest interest rate
  • Balance transfer – If you have a credit card with a crazy high-interest rate and a high balance, consider a balance transfer. Some credit cards have an introductory 0% interest on balance transfers, as long as 21 months.
  • Personal loan – If you have a large amount of credit card debt, and they all have fairly high-interest rates, consider a personal loan. If your credit is bad, however, this may not be a good option. The personal loan is only beneficial if the rate you get is lower than your average interest rate for your credit cards.

For more techniques for getting rid of debt, click here.

Track your net worth

Sometimes, with all of our bank accounts, retirement accounts, and debts, we get a little lost. The biggest benefit to tracking your net worth is keeping you focused on the big picture.

When you’re able to see your total number continue to improve month after month or year after year, it will give you the motivation to keep your current path.

Alternatively, if you see your number trend downward, you know that you have to make a change.

Use credit wisely

The ability to use credit responsibly is an enormous benefit to your financial success. If you purchase things here and there with a credit card and immediately pay the balance in full, you are doing two things.

One, you are building your credit and improving your score. The credit bureau sees that you are using your credit and are paying it off. This shows that you are responsible.

Two, you are earning rewards. Nearly all credit cards have a reward system. If you purchase things with a credit card, you’ll get miles for travel or cash back.

Using your credit card responsibly on things you normally buy, is an easy way to make your dollar go further.

Automate everything

Put your bills and savings on autopilot. If you set your bills on auto-pay, you never have to remind yourself to pay them. This frees up some mental energy. It also prevents you from forgetting to make a payment and thus, incurring a late penalty.

You should also set your savings to automatically take place at the beginning of the month. This forces you to save before you spend.

You can also have your investments set up to automatically reallocate to their original percentages. If you originally set up for 70% stocks and 30% bonds, and the percentages changed throughout the year to 74% and 26%, you could be taking on too much risk. Going back to 70/30 could protect your account and maybe earn you better returns.

Don’t house poor

Live within, or below, your means. If you are pre-approved for a loan of $250,000, buy a house for $200,000, or less.

Buying a house with that max number will force you to dedicate more of your monthly earnings toward your mortgage and less towards your other financial goals.

Buy a house that costs less than what you’re approved for and put that extra money towards your other financial goals.

Don’t waste money on a depreciating asset

The first and most important example of a depreciating asset is your car. Everyone wants to drive that new, fancy Mercedez or Cadillac, but it’s hardly worth it.

If you go out and spend $80,000 on a car, you will most definitely receive a short-term benefit, but soon after, you will go back to your original level of happiness.’

Not to mention that the payment and subsequent interest on that payment will cost you a lot of money. The car will lose the majority of it’s value over the life of the car, as well.

Get a car that is reliable and will get you from A to B. It will cost you less and your finances will thank you for it.

If you’ve been thinking whether to buy or a lease a car, I have the answer for you.

Obtain appropriate insurance coverage

Whether it’s car, home, renters, or life insurance, you need to have adequate coverage. Don’t skimp out on coverage just because it’s cheap. You need to have enough coverage to protect yourself and your family from disasters.

Value is not the same as price. Price only focuses on cost. Value focuses on getting the most bang for your buck.

Don’t take early withdrawals

If you’ve been able to save for retirement, don’t spend it until you have to. If an emergency comes up, do whatever you can to leave your retirement savings alone.

Unless you qualify for an exemption, an early distribution means a penalty, and you will be robbing yourself of the interest that would’ve compounded on that savings.

Be grateful for what you have

This is a big one. Being happy and grateful for the people and things that are currently in your life is the most important part of true happiness.

My thought is if you wake up healthy, with people in your life that you love, a place to live and food in your belly, that’s all you need.

Those things are your blessings and shouldn’t be taken for granted.

You’re never too poor to give

No matter how much you make, or much money you have that’s “extra,” you can always give.

Similar to the last point, it’s important to realize that things in your life could always be worse. If you have a job, you could easily be without one. If you have a place to sleep and clothes to wear, you could easily have those things taken away from you.

It’s important to help those that need it. People who don’t have a place to sleep or food to eat, need our time and resources more than we do. Do your part and help out.

Conclusion

Navigating your finances and all the challenges that come with it is difficult enough. It gets tougher when every single person wants to add their two cents on what you should do.

Do me a favor, use these tips to help make your decision, but ultimately, you have to do what’s best for you, your family, and your future self.

So readers, what’s the best piece of advice you’ve ever received?

Published by

Financial Health and Wealth

I am a Financial Consultant and Blogger. I live in the Greater Milwaukee area. I am married with a six-month-old son. My goal with this blog is to educate people to better understand basic finances and to help save them money along the way

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