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.
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.
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.
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.
What tips from your experience would you add?