10 Personal Finance Tips for My Generation

People often come up to me and say, “Hey Jamey, how do you manage your personal finances?” To those people I say: “Do I know you?”

But perhaps a better response would be to share what I do in the hopes that it will benefit you. And perhaps you have some interesting methods for managing and balancing your finances that can benefit me and the other readers as well.

This topic came to mind yesterday as I was talking with my father about social security and medicare. This is a bit of a generalization, but I feel like my generation doesn’t expect to get money from the government when we retire. Sure, it’ll be a nice perk if we get back all the money we put into social security and medicare, but we’re not betting on it. Rather, we’re saving money now so we have funds to live off of if/when we retire.

But a lot goes into getting to the point where you have a lump sum of money for retirement. It’s human nature to not look that far ahead, but the little things add up. Thus the following is a list of the little things I do that will hopefully make a big difference in the long run.

  1. This is Biddy’s favorite. Walter is ambivalent to treats.

    I track and record expenses on a monthly basis. This is by far the most important thing that I do. I break down everything I spend into several categories every month and compare them to the previous month. There are great programs to help you with this type of personal finance if you find it difficult. The key is that you are fully aware of how you are spending your money every month. It gives you the freedom to indulge, but it also keeps you in check when you are well over the previous month’s expenses (and, more importantly, over your monthly income). I have those moments of, “How did I spend that much on cat treats?!” And then I cut back the following month.

  2. I run big financial decisions by at least one smart person before signing on the dotted line. This goes in the category of “things I’ve learned the hard way.” I’ve definitely signed a few documents I shouldn’t have, and some of them have significantly impacted me. If I had waited a single day to have someone more savvy than me look over the documents…well, I’m not going to say that I’d own the 49ers by now, but the stadium would be called the Stegmaier Dome.
  3. I’m on pace to purchase this ring by 2139.

    I use a partitioned savings account and automatic withdrawals for seamless mid- and long-term planning. I’ve talked about this before on my Planning for Spontaneity post. The idea is that you set your bank account automatically withdraw small amounts every month so that when the time comes to make a big purchase, it’s not a shock to your checking account. For example, if you know that you want the iPhone 6 when it comes out next fall, start putting away $20 a month starting today in an ING savings account so that you have the $240 you need next September. I have accounts like this for my future car, future travel, and my future engagement ring (and I’m not even dating anyone right now!) I also have mutual funds for the mid-term and a 401k for the long term. I put the max into 401k that my money match will allow. If you’re not doing that, you will absolutely regret it in the long term. These things add up exponentially.

  4. I rarely use cash. It’s tough to track cash. I want to know exactly where I spend every penny of my money (this goes back to #1).
  5. I always pay off the balance of my credit card in full. You know what credit cards are? They’re a way to get rewards for the money you spend. What they are not are plastic loans. If you can’t afford to pay off your credit cards every month, stop using credit cards. But if you can afford it and you’re not using a credit card with a 0% APR, that’s pretty dumb too. You’re leaving cash dividends and rewards on the table.
  6. She still runs great!

    I bought my car used, and now that I owe nothing on it, I will drive it as long as possible. We all have our vices, and for some people that might be their car. I get that. Here’s my suggestion: Get a new vice. Like chocolate. It’s much cheaper. Then buy a used car (why on earth would you buy a new car? I’m serious. Tell me why. I bet there are a few good reasons and a lot of bad reasons) and pay it off. The feeling of not having a car payment is incredible. Of course, I continue to put the money I would be spending on a car payment in my future car savings account.

  7. I rarely buy clothes. I have no data to back this up, but I have a feeling that I save a significant amount of money compared to other people simply because I rarely buy new clothes. I literally think the only clothing I’ve purchased this year was three-pack of boxer briefs. Again, perhaps this is your vice (make sure you only have one expense-driven vice!), but keep it in check.
  8. I have a personal policy for charitable giving. You will be asked to give money hundreds of times this year. You can’t give to everyone, so give yourself some structure. There is freedom where there is structure.
  9. I pay off my college loans as slowly as possible. I’ll never forget when an acquaintance proudly declared to me about 5 years ago that she had paid off her 2% interest college loans ahead of time. I still cringe at the thought. Sure, there are some college loans that have high interest rates, but the federal ones have very low rates. The general idea is that if you can invest your money and make a higher interest rate than one of your loans, pay off that loan as slowly as possible and do better things with that money. In the meantime you’ll increase your credit score as you show creditors that you’re really good at making your monthly payments. But please, please do not pay off 2% loans in advance.
  10. I have an annual goal for money I want to earn outside of my day job. You’d be surprised at what you can achieve if you have a goal. For example, sometimes I forget that I have a second bedroom. If I need to use that second bedroom to meet my extra income goal, I’ll rent it out for a few months.

What tips from your experience would you add?