Some of you asked for a post on this topic awhile ago, and now let’s talk about this a bit!
Note: This is not advice, these are my thoughts and experiences. I am not a financial professional and you should not make financial decisions based on what I tell you. Thanks.
Money is a verrry charged and intimidating topic for many people, but it can really be enjoyable and fun to learn about. For real! A few years ago I read a bunch of books on the basics of personal finance: The Wealthy Barber by David Chilton (the numbers are very dated but the advice is timeless), The Five Lessons a Millionaire Taught Me, by Richard Paul Evans, and The Richest Man in Babylon, by George S. Clason.
The common thread in all these books was the rule: pay yourself first. Meaning, before you spend your money, put aside at least 10-20% of it in long-term savings. Recently I picked up another personal finance book in the library and opened it to a page which said something like, “The point of working for money now is to accrue assets to support yourself with later when you can no longer work for money.” This is the basic idea. Put away money now to use later. Where should you put it? Not in a savings account. You should invest it. Compound interest is your very best friend in the personal finance world. Let your money grow passively in an index fund or another low-cost mutual fund. I have an account through Vanguard. If your income is under the cutoff (I think it’s $140,000 for a single person), Dave Ramsey says a Roth IRA is your best choice after maxing out any 401(k) matches through your job for retirement money. (These are types of retirement funds. If you have an accountant, talk to them about these options, but Google some too to get oriented.)
Personal finance tips
First of all, do not be down on yourself for your financial situation, whatever it is. Really. Everyone thinks they should have more money in the bank than they already do. We’re all doing our best and life happens.
Know how much money you are making and how it is allotted. You don’t have to drive yourself crazy but know basically what is coming in and going out each month and what margins you have to work with.
Aside from the money you put into retirement savings, put aside money for an emergency fund. (I actually just had a discussion with a friend about doing this and she didn’t like the name “emergency fund” so we renamed it the “freedom and flexibility fund”). Basically figure out how much money you would need to support yourself for 3-6 months and save it in a bank account.
Savings goals are FUN. I mean it. I have an Ally bank account and within my account I have buckets set up which are like different sections where I can set goals and deadlines and see how close I am to my goals. Right now I have a bucket where I set aside money for egg freezing, a bucket where I am setting aside money to put towards my student loan, and once that’s done, a bucket for a down payment on a house. This last one is kind of a joke at the moment but it’s there…You can set up buckets for a travel fund, or a car fund, or a wedding fund. Once you have a goal and you are tracking your goal, it is so motivating to watch your fund grow slowly but surely! More ideas for savings funds are in this post.
I had mentioned that I kind of follow the Dave Ramsey baby steps. The baby steps were my first guide to dealing with money as an adult and I always find myself returning to them. Right now I’m not following them 100%, but a modified version:
- Save $1,000 – done.
- Pay back all debt except your mortgage – in process. I took out a student loan for the remaining semesters I had after I moved last spring, and I am waiting for payments to be due again before I start paying it back. As mentioned above, I am putting aside savings now for when payments start up again. At that point, I will pay it back as quickly as I can, please G-d! Dave would say to throw the emergency fund (see step 3) at the debt but I am not comfortable doing that given the fact that I am responsible for rent and such now.
- Save 3-6 months’ expenses in a savings account – done.
- Save 15% of your gross income in retirement. I had been doing this when I was working my last job and paused while I was back in school. Note that according to Dave, you should take up to three years off of saving for retirement to put money aside for a down payment on a house (step 3b). At the moment I personally feel more comfortable prioritizing my retirement fund, but this might change.
- Save for your children’s college fund. I plan to wait on this (and/or a simcha fund for my children’s weddings) until I have the children be”H. In the meantime I still have steps 2 and 3b, in any event.
- Pay off your mortgage early.
- Build wealth and give.
I hope this is helpful! I love hearing other people’s perspectives on personal finance and money issues, I find it really interesting! Have you read this?
