5 Tips for Getting Your Personal Finances Dialed In

Newsflash Millennials, your education failed you.

Your school offered classes in calculus, chemistry, and goofy electives like “music.”

If you’re going to be an engineer (as I often advocate) or a pharmacist, you might need calculus or chemistry, but how come your school didn’t offer one of the most important subjects for a successful adult life, personal finance?

It baffles me how terrible (even smart people) are with money.

Aside from the combination of exercise, sleep and nutrition, I can think of few things as important.

These are my top 5 tips for getting your personal finances dialed in.

Avoid debt at *all* costs

With more than 44 million borrowers who collectively own $1.5 trillion in student loan debt in the U.S. alone, it’s safe to say this has reached crisis level. The average student in the Class of 2016 owes more than $35,000, (Careers Wiki).

The huge amount of debt from student loans have forced millennials to delay life milestones like getting married, purchasing a home and saving for retirement, (NBC News).

The easiest way to avoid student loan debt is to skip college all together.

Now, most studies show that the return on investment on a college education is still very good, but I highly encourage you to research majors. You need to understand what schools and what majors have a strong return on investment.

One of the smartest and most successful people I know went to two years of junior college and then two years at a state school. He incurred virtually zero debt, got a solid education and has a great career in finance.

I always joke that my kids can be whatever they want as long as it ends in “engineer” – computer, chemical, mechanical, electrical, aerospace – doesn’t matter to me.

Society depends on these jobs, they are unlikely to be outsourced by technology any time soon and they pay really well.

Don’t get me started on credit card debt.

With the interest rates on credit cards, never, ever get into credit card debt.

For a small minority of you, there are times when it makes sense to use someone else’s money to purchase an asset that has the ability to earn you more money, but most of you that end up in credit card debt do so because you buy things you want, but do not need to keep up with the Joneses.

If you avoid debt, you are able to take more risks in other aspects of your life – like your career.

Track Your Spending

If you’re trying to lose weight, you would probably track what you eat, right?

So, if you’re trying to save money, why wouldn’t you track what you spend?

It amazes me how few people do this.

My wife might tell you that our 11-category spreadsheet is overkill – especially since we’ve been doing it for 5+ years and have our finances pretty dialed in, but it’s critical to understand where you’re spending your money.

Most people spend way more than they realize or are even willing to admit to themselves.

You probably don’t need an 11-category spreadsheet, but I highly recommend taking advantage of one of the many available online tools and/or apps. You Need a Budget is consistently ranked the best.

Most of you have heard of Mint. It’s great at tracking your expenses, but not the best at budgeting.

Okay, so you’re avoiding debt like the plague and you’re tracking your spending.

What’s next?

Start Investing Early

This is another reason why taking on student loan debt or credit card debt in your early 20’s is so detrimental.

You’ve all seen the charts that show the difference in total returns when you start investing early.

Compound interest might be the most valuable concept in the world.

In 1994, USAA published a chart showing how much money you’ll accumulate over time if you invest $250/month until age 65. It assumes an eight percent average annual investment return.

Start at age…

• 25:You’ll accumulate $878,570 by age 65
• 35:You’ll accumulate $375,073 by age 65
• 45:You’ll accumulate $148,236 by age 65

Don’t overthink this…

Investing can be complicated, but very, very few traders beat the market.

Active investing (i.e. picking stocks) is incredibly hard.

Here are a few easy ways to get started:

• Contribute up to a least your employer match on your 401K.
• Contribute as much as you can to a Roth IRA.

What’s awesome about a Roth IRA is that you invest using after tax dollars so both your contributions and earnings are tax-free when it’s time to withdraw.

In addition, in a pinch, you can withdraw your initial contribution (not the earnings), tax free before the withdraw age of 59 ½ years old. It’s not encouraged, but it is an option that provides some flexibility.

• Explore a low cost index fund

The great thing about index funds is they take human emotion out of it. It’s a passive form of fund management that (thus far) seem to outperform actively managed funds. Because they’re passively invested, the expenses are lower.

I personally like the Vanguard Total World Stock Index, but do your due diligence and consult a fiduciary financial advisor to term the best investments for your goals.

Earn More Money

Often times, when people start saving money they get obsessed about cutting small costs.

I’m not saying you need to spend $25/week on a coffee, but there’s no need to deprive yourself of the things that add satisfaction to your life either.

There’s only so much money you can save, but you can always earn more.

As long as I can remember I’ve had a side hustle in which I’ve consulted across a broad number of industries on business, marketing and communications strategies.

The extra money is great because it’s provided the following:

• Additional savings
• A safety net for unexpected expenses
• Guilt-free spending money
• Additional income to invest back into my own learning

There are a lot of people who, if their vehicle broke down or the air conditioning unit went out, they wouldn’t have the ability to get those things fixed right away and they would adversely affect their lives.

The median savings account balance for those under 35 years old is only $1,580, (Smart Asset).

Earning more money helps prevent against things that happen outside of your control. You might be frustrated that you’re out some money, but you won’t have to worry about not making it to work, or not sleeping because you’re sweating through the night.

In addition to hedging against small (or big) catastrophes, earning more money enables you the flexibility to buy your time back.

If you can afford to have someone clean your house, mow your yard, etc., you can spend the time you save with your family or, if you prefer, earning even more money.

Invest in Yourself 

Finally, as I alluded to in the last section, learn to invest in yourself.

Books, coaches, courses, or a combination of all three.

It doesn’t matter your preferred method, what matters is that you keep leveling up.

Investing in yourself can manifest itself in a lot of ways.

It could mean hiring an executive coach to help you become a better strategist, a better speaker or more knowledgeable about a niche that will advance your career.

“But I can learn everything online for free.”

First of all, you can’t learn everything. And, even if you can learn most things, coaches help expedite the process. Good ones are worth their weight in gold.

LeBron has a coach. Serena Williams a coach. Many of the top musicians have vocal coaches.

That said, investing in yourself doesn’t have to require a monetary investment.

It can mean investing time into cultivating strong relationships.

It can mean learning about and taking care of your health via nutrition, fitness, etc. so that you’re alive to see your great grandkids one day.

Author of the new book Atomic Habits, James Clear talks about the aggregation of marginal gains – or getting 1% better each day. If you improve yourself by 1% each day for one year, you’ll end up thirty-seven times better by the time you’re done.

The best part about investing in yourself is that will enable you to earn more money both in your career and your side hustle.

So there you have it.

The personal finance primer you never had in school.

In summary

• Avoid debt at all costs, especially credit card debt. Be smart about student loan debt and ensure the school and chosen major have a solid return-on-investment.
• Track your spending. Knowing how much you spend and on what will be eye opening.
• Start investing early. Compound interest is magic and the earlier you start, the more you can take advantage.
• Earn more money. Earn a raise and ask for it. Start a side hustle. After a certain point, earning more money won’t make you happier, but it can provide a nice safety net and the flexibility to buy your time back.
• Invest in yourself. One of the best ways to earn more money is to consistently and continually reinvest in yourself.

** Photo by Michael Longmire on Unsplash