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?

13 thoughts on “10 Personal Finance Tips for My Generation”

  1. Great post. I think many people of our generation have their heads buried in the sand about personal finance, so I think this is a valuable topic for the blog.

    One thing that I’d add is that, assuming we don’t get a dime from social security, we should all be maxing out an IRA (Roth IRA for most people) in addition to our 401K. If you have a 401K w/ employer match, meet the employer match first, then max out your IRA contribution (since you have more options for investing this money than you do with a 401K), then max out your 401K–in that order.

    My one point of potential disagreement is that I think the idea of automatically buying a used car isn’t necessarily in alignment with the current economy. I’d suggest that potential buyers look at both new and used cars (and the value they’ll hold once they leave the lot vs. the cost/warranty/etc), and make the best decision based on those variables. Since our economy is hurting so badly, we found that the new cars we wanted could actually be purchased for less than a car 1-2 years old (about a year ago).

    My final thought would be that, if you do a good job on the basics of money management (saving for retirement, budgeting, etc), then you should enjoy some of your money. I don’t necessarily agree with the term “vice” as used above. I’d be more apt to say passion or indulgence. If you know you love sports cars, nice clothes, or expensive restaurants, don’t beat yourself up when you spend on your passion. Once you have other basics covered, set yourself up well to be able to enjoy spending some money (as budgeted) on the things you love.

    • Trev–Thanks for your thoughts on the Roth IRA. For some reason I’ve delayed getting one of those (I think it’s because I need to have some liquid cash for these side projects of mine), but that’s no excuse. It’s not hard to put a little money into anything from month to month.

      That’s really interesting about the car. I wonder if that’s common or if you stumbled upon an anomaly.

      I really like what you said about indulgences and spending money. A lot of the structures I use let me spend money without feeling guilty. I save up for things that will be important to me in a year or 2 years. And I monitor my spending, but I don’t restrict myself. The reverse would be if I set aside $100 a month to eat out at restaurants, and once I exceed that amount, I can no longer eat out that month. However, that seems really restrictive. I want more freedom than that. Thus I prefer my method of simply monitoring expenses and keeping an eye on things in case I spend more than usual on a given month.

      • I am intrigued about this car thing! We are shopping for them right now and are finding that new cars are about $800 more than a 2-3 year old car (same model) with 30-50K miles on it. So why wouldn’t we spend the extra $800 for fewer miles and a presumably better deal/warrantee?

    • I’m convinced we’re all gonna hit that magic age where we can withdraw from our Roths without penalty, and they’ll change the laws to double-tax us.

  2. I went through this whole long thing about employer matches and Roth IRA’s, and then realized that Trevor just posted the same thing!

    I was totally unaware of that before a couple of years ago. I was stuck in some crappy motel room in AZ flipping through channels and landed on some Suze Orman show where she talked about retirement planning. Before then, I was just contributing as much as I could to my 401(k) and keeping it all there. It’s things like that–what I don’t know that I don’t know–that scare me about retirement planning. I try to do my homework, but I feel like there’s so much to learn!

    For the last few years I’ve been adding in college savings for Charlotte, and trying to make that money grow in the best possible way. Unfortunately there is a little bit of conflict as well between the fantasy of wanting to be able to pay for her college in full and the reality that she can take out loans for college but we can’t take out loans for retirement! Parents sometimes need to make tough choices and think big picture–you don’t want your kid to leave college without loans but then have to take care of you down the road because you can’t make ends meet.

    I like that you mentioned thinking about other ways you can earn money. I’ve also tapped into that in the past year or two, and it’s both a great way to get a little extra spending money and also put away some extra. There are a lot of areas of opportunity that people can do in their spare time without a lot of sacrifice. I do freelance writing on the side to earn extra money, and not only has it been lucrative at times, but it’s given me great experience and exposure to something I love but don’t get a chance to do in my chosen 9-5. I’ve worked on some amazing projects that I’m really proud of, and I get to grow my portfolio and make money in the process!

    • Katie–That’s awesome that you’ve started to tap into other ways to earn extra money. You make a great point that it’s about more than the money–it’s about learning new things and expanding your reach/network.

  3. Much of this post talks about not spending money and saving. Spending money in order to be more awesome is also good. An easy example is purchasing an appropriate smart phone. My smart phone is more than just a nice way to update facebook, it makes me more effective personally and professionally. Similarly for purchasing apps, tools, and devices that save you time.

    • John–That’s a great point as well. Time is money. And sometimes, quality is money. You can buy a cheap pair of shoes that will last you a year, or you can invest in a nice pair of shoes that will last you five years (or more). Sometimes it’s good to take a short-term loss for a long-term gain.

  4. All excellent points above. I was also going to mention the Roth IRA. I had heard that was what to do, but it took me a couple of years to actually get around to opening one up. Stupid, but true.

    The other thing I would disagree on is the car, but for slightly different reasons than T-Mac. I had always learned the same thing about new and used cars—go for the 2 to 3 year old used car since it’s a better value. At least that’s what they taught me in Personal Finance at Wash U 😉 but when I went shopping to replace my dying car, about 5 or 6 years ago now (so in a booming economy), I discovered that since I was not a person who needed or even wanted all the bells and whistles on my car, that base model new cars were about the same price as the cheapest 2-3 year old used cars they had. Why? because the used cars all had leather interior, sunroofs etc. None of which mattered to me as much as the reliability and lifespan of the car. It dawned on me that the 2-3 year old used cars on the lot are usually the product of leases or other people who want a new car every few years. Now this is jumping to conclusions a bit, but it seems those people also like all the extras on a car as well and people who buy a base model tend to hold on to their cars longer. I also don’t trust a lessee to care about the longevity of the car since they’re generally in it for the short term only.

    • Christine–Interesting analysis. I think you are correct. I would say that I’m the type of person who wants a reliable car that has a few of those nice perks, so a used car might be ideal for me. For someone who wants the basic model for a car, it sounds like they’ll get a better deal getting a new version of that car and driving it for a long time rather than getting a used version (especially since it might be difficult to get a used version).


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