What’s the one piece of financial advice you’d give someone? Over several years as a financial journalist, I’ve gotten many questions about money—but that one’s come up a lot.
Of course, there are dozens of books with hundreds of pages of financial advice. So it’s hard to boil all that down to just one tip. But if I had to, it’d be this: Live on 85 percent or less of what you earn, and save and invest the rest. That way, no matter how you spend the rest of your money, you know you’re taking care of your future and you’ll have a cushion to help you get through the rough times. I wish I’d heeded my own advice in my 20s, but I’m grateful I started setting aside that much early enough to benefit from compounding and to reap the rewards of investing over time.
But you don’t need to limit yourself to one piece of advice in the quest for financial success. Here, financial advisors, experts and well-known money bloggers share the top tips that have worked for them.
“Stop waiting to be an expert! Just start saving and investing now.”
Mandi Woodruff, executive editor of MagnifyMoney
“I didn’t earn much as a reporter during my early years,” says the financial journalist. “I thought there was no way I could really save or start investing, so I just used that as an excuse to keep maxing out my credit cards and ignoring my spiraling finances. Finally, I got my act together and started following that advice. I emailed my HR department, Googled ‘target-date-fund’ and set up my 401(k).”
In less than four years, she says, her retirement account balance has grown to about $40,000, thanks to her regular contributions, market returns and, yes, the magic of compounding. “I am still amazed,” she says.
Kyle Taylor, founder of The Penny Hoarder
“Set your bank account up so that when you get your paycheck, a certain amount is automatically transferred directly into your savings account,” suggests Taylor. (You can also arrange to have a certain percent of each check transferred into your employer-sponsored retirement account, Individual Retirement Account or other tax-advantaged account, as well as a regular brokerage account.)
“I believe strongly in the ‘pay yourself first’ rule,” adds Taylor, whose six-year-old blog, which features ways to earn and save money, has evolved into a site that now attracts millions each month. “Before I pay any bills, a good chunk of my paycheck goes into savings. Then I send a big chunk to my 401(k). Whatever I have left over is what I use to figure out the rest of my monthly budget.”
Automating the amount you want to set aside from your earnings provides insurance against temptation. And when you pay yourself first, you can sweat a little less about how you spend every other penny each month.
“Start living on a monthly budget.”
Chris Peach, founder of MoneyPeach
Once you’ve got your automatic payments set up to put toward your future, a monthly budget can help ensure you don’t tap that savings before you need it—and even help you find places where you can carve out additional savings or extra money to put toward debt to pay it off even faster.
“Our lives are already set up on a monthly schedule (mortgage/rent, bills, payments, etc.), so, why not keep it simple and budget one month at a time?” says Peach. “Remember to set up your budget before the month actually starts, and use your budget as your money road map over the next 30 days.”
“Link all of your accounts to Mint.com [or a similar service] so you can see everything in one place.”
Once you’ve you started paying yourself first and set up a budget, linking your accounts can help you make sure you’re staying on track.
“I find as a financial advisor that most people don’t even really know where their money goes; at best, they know about what their ‘typical’ outflow is, and whether it’s stable. And few people want to take the time to delve in and really figure it out,” says Kitces.
“The fact that Mint does this automatically is amazing…the mere feedback of where the money is going has been invaluable to keep reasonable checks on our spending. This is especially important in your 20s and 30s, and even 40s, because the reality is that keeping a handle on your spending and whether you save, is radically more beneficial and impactful than trying to figure out the perfect or best thing to invest in.”
“Track your net worth every month.”
Stepping back to look at your total net worth provides a broader view of your financial picture.
“Nothing tells you better whether you’re on the right path or not than staring the numbers straight in the eye! And that’s exactly what your net worth does for you—it gives you an overall ‘snapshot’ of your finances at that given point in time,” says the popular financial blogger. “Whether you’re paying off debt or trying to build the world’s biggest investment portfolio, all sides are accounted for in it so every smart move you make (or don’t make!) gets reflected. And the beautiful part is that it only takes three to five minutes a month to keep updated!”
That’s something you can use an online tool to do—or just a pencil and a piece of paper. You add up your assets (e.g. your investment and savings account balances, the value of your home, etc.) and subtract your liabilities (e.g. any debt you owe, including any remaining balance on your mortgage).
September 13, 2016