My money project is ongoing, but I thought I'd share what I've learned so far in a money manifesto-in-progress.
IMPORTANT MONEY TIP #1: Figure out where every dollar is going.
In big girl terms, "create a budget". It's hard to project where your money is going to go in the next month if you've never kept track of a budget before, so if it's your first time creating a budget, start by keeping track of every penny you spend in a month. Every penny. For me, that meant keeping receipts from every grocery store trip, every last-minute convenience store run (I cannot even begin to tell you about what a money-sucker convenience stores are when they're at every corner selling delicious instant cup noodles and mint chocolate chip ice cream bars... DROOOOL... just the thought of that satiating sweet and salty cycle on a humid hot day in Japan is enough to make me want to move back...), and writing down every dollar spent on a bus ticket or train ride.
IMPORTANT MONEY TIP #2: Cut unnecessary spending.
Aka stop going to Starbucks. For me, unnecessary spending came in the form of fast food, junk food, and vending machine coffee. I was spending at least $5/day on crap I shouldn't have been putting in my body to begin with. By making and packing my lunch every day, I started to saving a little bit of money every day that added up quite nicely by the end of the month. It wasn't a huge form of saving money, but it encouraged me to find other ways to save. It turned out that fast and easy junk food was like a leaky faucet to my bank account. AND HEY! There's also the obvious added bonus of actually eating healthier.
IMPORTANT MONEY TIP #3: Pay off all debts.
For me, that meant paying off my $20+k in student loans. At first, I felt way in over my head. I felt like I was throwing loads of cash at that debt yet hardly making a dent. Brian took a look at my list of debts and pointed out that all of my loans had the same interest rate (6%). He suggested that rather than letting the loan calculator chop up each payment and apply it to whichever loan it calculated "should" get a piece of that payment, I should focus on paying off one loan at a time, starting with the loan with the least amount left in its balance. That way, I could actually watch each loan get paid down and paid off one by one sooner rather than later. In practice, of course I was still paying off the same amount per month, but he was right. It was so much more encouraging to watch one balance sink quickly than it was to skim a bit off the top of each loan.
For two years, I made monthly payments to my loans that ranged between $800 - $1,500. In hindsight, I was playing a risky game. Just when a new paycheck was coming in, I'd get ready to zero out my bank account in order to apply every cent leftover from the month to my debt. I never had more than a month's income of cash on hand. I had no idea what I was doing and I don't recommend anyone do this... thank God no emergencies or crises came up! Which brings me to my next point...
IMPORTANT MONEY TIP #4: Stock up on emergency cash.
Everyone has a different rule of thumb when it comes to how much money you should have quick access to in an emergency fund. To be on the safe side, I multiplied my monthly expenses by 6 (a six-month emergency fund) as a target amount.
In order to save up in a way that felt productive without feeling constraining, I set up an automatic transfer from my checking account to my savings account. Each month, right after payday, I sent 20% of my paycheck to my savings account. I don't touch that money. I won't touch that money unless, God forbid, a medical-related or similar emergency comes up.
IMPORTANT MONEY TIP #5: Spend on things that enrich your life.
This tip is kind of strange, but bear with me. After I'd squared out my debts and along the way with saving an cushy emergency fund, I spent money on things that get me a lot of bang for my buck. I don't feel rich in life when I have a big screen TV (some do, and that's OK). Instead, I spent that money that I could have spent on a TV on some new camping gear to go camping with my sister and fiancé and on a couple of plane tickets to bop around South America this summer. While I was paying off my debts, I shopped minimally... but I did go ahead and spend the money on a plane ticket to visit my family in the Philippines and took my cousin on a vacation trip to Palawan.
What is the point of money? To save up, or to live? To live! Money is a means to an end, not an end itself. To me, to live means to be able to eat crazy delicious food (not to be confused with convenient, junky food), to be rich with experiences like camping and hiking, to spend time with friends and family, and to travel.
IMPORTANT MONEY TIP #6: Incubate your nest egg (retirement!).
They say that a person who saves for retirement between the ages of 20-30 will far surpass the savings of a person who saves for retirement between 30-40. It's so tempting to skip saving for retirement when there are more fun things to do with your money sooner rather than later. Just force yourself to make it a habit now and don't think about it anymore. Think of your disposable income as the money you have leftover after you've put away money for retirement. In my case, that means grabbing my company-sponsored retirement fund match and biting the bullet and maxing out a Roth IRA before I spend that money on anything else.
Just remember: as long as you're planning to live past 65, you can't work until you die. You physically cannot. You also don't want to be stuck in a situation where you can't work and all you can afford to eat is cup noodles until you die. Again, there are all kinds of rules of thumbs for how much you should have saved up for retirement. Some say you should save up 1x your annual income by the time you're 35, 3x by 45, and 5x by 55. Others say to aim to save up to about $1.5mill by the time you retire. And on and on.
Figure out what kind of retirement life you want to live (when do you want to retire? what will you do--travel? live with your kids? live in a big house? live in an RV?), calculate out how much you'll need to live per year times and multiply that out by how many years you expect to live in retirement. Start saving. Choose wise investments.
IMPORTANT MONEY TIP #7: Make your money work for you--part 1: savings accounts.
I said that I set up an automatic transfer to my savings account and let it sit untouched in TIP #4, but I sort of lied. I actually opened up a higher yield savings account (one that had a higher minimum balance, but one that I could now afford) and moved all my savings into there. As my money grows, I'll look into even higher yield savings accounts and eventually start storing my money in bonds.
IMPORTANT MONEY TIP #8: Make your money work for you--part 2: credit cards.
Credit cards seem to be largely misunderstood and feared by consumers... and rightfully so. Credit card debt is no joke. I did not understand how to properly use credit cards for so long because I was too afraid to use them. I'd pay off my credit card as soon as a charge went through--I basically used it as a debit card because I was so afraid of accruing interesting or paying late.
I finally did my research and learned what all those confusing dates and terms meant (statement balance, payment due, last payment, ...). I opened a few credit cards and pay them all in full after the end of the billing cycle. My credit score went through the roof and I'm swimming in rewards points! Brian and I racked up over a $1,000 in rewards points in this past year alone.
When using credit cards, come out a winner at the end of the month by doing all of the following:
1.) take advantage of sign up bonuses as long as your regular monthly spending allows you to reach the initial spending requirement
2.) never carry a balance, unless you're taking advantage of an introductory 0% APR credit card
3.) opt for cards with rewards programs that match your spending habits and savings goals
4.) only pay an annual fee if the rewards payoff far surpasses the cost of the fee; if not, downgrade the credit card once your free trial runs up
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At least once a week, I cycle through these 8 steps towards better financial habits to make sure that I'm staying on track. The goal is to have full control of your spending and saving habits in such a way that you are comfortable, protected, and only spending on the things that are most important to you.