Achieve Your Best Financial Self

My clients and students demonstrate a range of personal finance behaviors – from stellar, to clever, to needing improvement. Here’s my list of DOs and DON’Ts to achieve your best financial self and ensure you:

  • manage spending
  • build up savings
  • improve your credit score

1. Track your spending.

Use debit or credit instead of cash so you can more easily monitor your total spending each month. Have a target and adjust if you’re not hitting it.

2. Avoid credit cards if you don’t have the discipline to pay your balance in full every month.

Credit cards have some advantages compared to debit cards but they’re dangerous if you carry a balance. If that’s you, stick with debit. Tear up your credit cards or put them in a drawer for emergencies.

3. Don’t borrow for anything other than housing, education, and a car.

If you cannot pay in full for furniture, vacations, weddings, engagement rings, honeymoons, gifts, or other purchases, you cannot afford them. Instead, create separate savings accounts and purchase them after you’ve saved the money, just like the “lay-away” accounts of years past.

4. Restrain your “social spending.”

Peer pressure, FOMO, and YOLO create powerful spending pressures. Keep those wolves at bay or they’ll eat you alive. Try socializing your concerns about overspending to your peer group. You may be pleasantly surprised to find out that others are feeling the same pressure and glad you had the courage to raise the issue.

5. Don’t let your spending increase proportionally with your income.

As your income grows, save more money. Otherwise, you’ll drive yourself crazy and never get off the hedonic treadmill. Springsteen sang his version:

Poor man wants to be rich
Rich man wants to be king
And a king ain’t satisfied
Until he rules everything.

6. Save for retirement.

Use payroll deductions and contribute 15 to 20% of your income to your 401K plan and/or a Roth IRA. You’ll “pay yourself first.”

7. Save for emergencies.

Sh*t happens. Have 3 to 6 months of living expenses saved in an emergency fund. Until you reach that level, rein in all discretionary spending. Start now if you’re short.

8. Save windfalls.

When you receive a windfall – e.g., tax refund, work bonus, birthday gift, inheritance, pandemic stimulus check, third paycheck of the month if you’re paid bi-weekly – don’t spend it. Instead, either save it or pay down any consumer debts you have. For the best ways to save, read this.

9. Keep the money out of your checking account.

Trick your brain by moving money into your savings account or a Roth IRA where you’ll be less inclined to spend it. Set-up an additional payroll deduction at work to divert the money from your checking account or set up an automatic debit at your bank to move the money out of your checking account on a regular basis.

10. Don’t incur financial fees.

Avoid all the pesky fees associated with your bank account such as out-of-network ATMs, monthly maintenance, overdrafts. etc. Don’t incur credit card late payment fees. Also, when you invest your retirement savings, choose mutual funds with low expense ratios. Otherwise, these fees will erode your savings over time. Don’t be the reason banks have marble floors and expensive artwork.

11. Understand your obligations if you co-sign a loan or a lease.

Make sure you trust your co-signer’s commitment to repay or you could be stuck with an unpleasant surprise for which you are fully responsible. Don’t co-sign for any obligation unless you really have no other choice.

12. Pay your bills on time and in full every month.

With online banking and automatic bill pay, it’s easy to manage these payments. Besides nuisance fees, late and missed payments lower your credit score.

13. Stay current with your student loans.

These loans are not dischargeable in a bankruptcy so if you don’t keep current with them, they will haunt you. Your credit will be damaged and it will be difficult to borrow in the future. Don’t wait for Biden to bail you out as it’s unlikely to happen.

14. Lastly, align with your partner.

When you’re in a relationship, all these points are doubly true. Have some occasional conversations to make sure you’re on the same page. It won’t be the most romantic part of your week but it will pay dividends later.

A few small behavioral tweaks here and there compounds into big improvements down the road.

Want more help? Get in touch to learn more about my Building Financial Resiliency service.

Questions?  Get in touch

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