Erin Gobler

  • How to Save for Retirement When You’re Self-Employed

    When I started my career after college, retirement was the last thing on my mind. I was 22, and it hardly seemed important. Luckily my employer (the state government) required that I contribute to my retirement account — otherwise, I probably wouldn’t have!

    As I learned more about finance, I began to see the importance of saving and investing early.

    By my late twenties, I was contemplating quitting my job to run my own business. One of the biggest things holding me back was the fear of being on my own to save for retirement.

    I spent months researching, learning everything I could about the best way to save for retirement when I was self-employed. And today, I feel confident that I’ll be able to retire comfortably — and probably earlier than if I had stayed at my government job.

    In this article, I’m sharing that knowledge with you and talking about how to save for retirement when you’re self-employed.

     

    How to Save for Retirement When You’re Self-Employed

     

    Saving for retirement when you’re self-employed

    The unfortunate truth is that most people aren’t saving enough for retirement. Data from the Federal Reserve shows that only about 36% of Americans think they’re on track with retirement savings.

    The numbers get even bleaker when you look at self-employed individuals. Data from Pew shows that only about 13% of solopreneurs contribute to a retirement plan. For some workers, it’s that they simply know what options are available to them. And then there’s the fact that when you’re self-employed, you don’t have an employer to contribute to your account as people with more traditional jobs often do.

    With this article, I’m hoping to help people understand what options are available to them so they can finally start preparing for retirement.

     

    Saving vs. investing for retirement

    Before I dive into the retirement plans for self-employed individuals, I first want to make a quick clarification.

    When we talk about retirement, we typically use the phrase “save for retirement.” In reality, you should actually be investing for retirement.

    When you invest, your money grows. And each year, your earnings compound — that means that your earnings also begin to earn money. Over time, you have more and more money earning money, meaning it grows faster and faster.

    Let’s look at a quick example. Imagine you saved $200 per month from ages 25 to 65. Instead of investing the money, you put it into a bank account where it doesn’t earn anything. By the time you’re 65, you’d have $96,000.

    But what if you put that same $200 into the stock market? Using the Securities and Exchange Commission’s estimate for average annual stock market returns, you would reach age 65 with more than $1 million.

     

    Retirement plans for self-employed people

    SEP IRA

    A Simplified Employee Pension (SEP) IRA is a type of retirement account specifically designed for self-employed individuals. SEP IRA contributions are tax-deferred, which means your contributions are tax-deductible, and then you pay income on the money you withdraw during retirement.

    Using a SEP IRA, entrepreneurs can contribute up to 25% of their annual income each year, with a maximum contribution of $61,000 per year as of 2022.

    A SEP IRA is perfect for solopreneurs, but there are special rules for people with full-time employees. If you have a full-time employee, you must contribute to their account at the same percentage you contribute to your own.

    A SEP IRA is what I personally use for my business!

     

    SIMPLE IRA

    A Savings Incentive Match Plan for Employees (SIMPLE) IRA is another type of retirement account designed for small businesses. With this type of account, you can contribute up to $14,000 per year as of 2022. Like the SEP IRA, your contributions are tax-deductible. If you have employees, you must also contribute a small percentage to each of their accounts.

     

    SOLO 401(k)

    A Solo 401(k), also known as an Individual 401(k), is another way that entrepreneurs can save for retirement. Like the SEP IRA, participants can contribute up to $61,000 per year as of 2022. Contributions are also tax-deductible.

    The big difference distinction with the Solo 401(k) that separates it from the SEP IRA is that you can contribute as both the business and an individual. First, as an employee in your business, you can contribute up to $20,500 up to 100% of your income. Then your business can also contribute up to 25% of your income, with a maximum combined contribution of $61,000.

     

    TRADITIONAL OR ROTH IRA

    The three plans I described above are specifically designed for self-employed individuals. They’re the best option if you work for yourself because they have high contribution limits — especially for the SEP IRA and Solo 401(k).

    But another option is to set up a traditional or Roth IRA. These accounts are available to anyone, not just self-employed people. They also have significantly lower contribution limits at just $6,000 per year.

    The one benefit to using this type of account (perhaps alongside one of the options above) is that you can contribute to a Roth IRA. With a Roth IRA, you contribute with post-tax dollars, meaning there’s no tax deduction. But then the money grows tax-free, and you don’t pay taxes on it during retirement. The other self-employed IRAs don’t have a Roth option.

    If you choose to open a Roth IRA, I would open it in addition to another self-employed retirement plan.

     

    Where to open your self-employed retirement plan

    Not only are there plenty of different types of self-employed retirement plans, but you also have plenty of options for where to open your plan.

    This might be confusing, so let me explain it in a simpler way. Think of your brokerage firm (meaning where you open your account) as a piece of land. The specific type of retirement plan you choose (SEP IRA, Solo 401(k), etc.) is the house you put on the land. And the individual investments you invest your money into is the furniture you fill the house with.

    When choosing a brokerage firm, you have two primary options. If you want to be a hands-on investor, you can choose a traditional brokerage firm like Vanguard, Schwab, or Fidelity. You choose what to invest in, and typically pay very low fees.

    A popular option for retirement savings is a target-date fund, which is a type of mutual fund that corresponds with your retirement year. For example, if you planned to retire in 2050, you would find a target-date fund associated with the year 2050.

    Target-date funds have a fund manager who changes the asset allocation as time passes to ensure it’s appropriate for the time horizon. As 2050 nears, the fund manager will decrease the number of high-risk investments in the fund and increase the number of low-risk investments.

    If you prefer a more hands-off approach, you can use a robo-advisor. Your robo-advisor will ask a few questions about your age, investment goals, and more and then choose your investments on your behalf. The fees are a bit higher, but it takes way less time and research on your part. My favorite robo-advisor is Betterment.

     

    How much to save for retirement when you’re self-employed

    One of the most challenging parts of saving for retirement is figuring out how much you need to save. After all, you have no idea how much money you’ll need or how much you’ll money will grow in the stock market.

    Luckily, there’s a took to make it easier for you.

    Personal Capital has a retirement calculator that can help you estimate how much you should save each month to retire comfortably. It uses information such as your age, current savings, desired retirement age, and spending habits to predict how much you’ll need. And using average stock market returns, it will give you an estimate of how much you should save monthly to get there.

    What I love about the calculator is that you can adjust different factors to see how that changes things. You can increase your decrease your desired retirement age or the amount you want to spend each year while retired to see how that influences the amount you need to save.

     

    Retirement saving tips for self-employed people

    DON’T WAIT UNTIL YOU’RE DEBT-FREE

    Before I dive into the steps to take to start saving for retirement, I first want to address the question of whether you should start investing while you still have debt.

    Some personal finance leaders (okay, one personal finance leader) say that you should wait until you’re debt-free to start investing for retirement. This couldn’t be further from the truth.

    Remember above where we talked about compound interest and how it helps to take the amount you invest and grow it into way more?

    Well, compounding only happens when your money is in the market for many years. And unfortunately, many people are paying off debt well into their 30s, 30s, 50s, and even later.

    If you want until your debt is gone to start saving, your money doesn’t have time to grow.

    As a general rule, compare the interest rate on your debt to the average return of the stock market (10%, according to the Securities and Exchange Commission). If your debt interest rate is higher than that, pay it off first. If it’s lower, you can invest at the same time because your investments will be growing faster than your debt.

     

    SET UP AUTOMATIC MONTHLY CONTRIBUTIONS

    It’s easy to tell yourself that you’ll set aside money each month for retirement. But more often than not, something comes up that stops you from doing so. 

    The best way to make sure you’re saving consistently is to make it automatic. Decide how much you want to save each month to hit your goal, and then set up an automatic monthly contribution in that amount.

    It’ll automatically come out of your bank account each month, so you never have to think about it, and you won’t have a chance to talk yourself out of it.

     

    DEDUCT YOUR CONTRIBUTIONS

    Retirement accounts come with tax advantages that you should be aware of. Most retirement accounts have tax-deductible contributions. You can deduct everything put into the account throughout the year, which reduces your taxable income and, therefore, your tax liability. 

    The one exception to this is if you’re contributing to a Roth account. In that case, you contribute with post-tax income and the tax advantage comes when you withdraw the money during retirement.

     

    Final Thoughts

    Retirement savings is something many people don’t really think about when they dream of leaving their jobs to become self-employed.

    When you’re just getting started, it can feel overwhelming and confusing. But it becomes a lot easier as you go. And you’ll thank yourself later when you can retire and enjoy your later years!

  • How to Pay Yourself First and Finally Start Saving Money

    Here’s how most people approach saving money:

    They tell themselves that they’ll save whatever is left at the end of the month. But someone there never seems to be anything left when the end of the month rolls around.

    I was stuck in this pattern for years, and I know how frustrating it can be.

    I finally learned the “pay yourself first” strategy, which has completely changed the way I budget and has helped me to save money consistently each month.

    In this article, I’m sharing how you can pay yourself first to pay off debt, build your emergency fund, and save for your biggest financial goals.

     

    How to Pay Yourself First and Finally Start Saving Money

     

    What does it mean to pay yourself first? 

    The concept of paying yourself first means that you set aside money in your budget for savings and financial goals before budgeting for anything else. You treat your savings just as you would any other bill, meaning its non-negotiable.

    The entire purpose of the “pay yourself first” strategy is to avoid the problem I talked about earlier, where you run out of money each month before you have a chance to save any. 

    When you pay yourself first, you transfer money out of your checking account as soon as you get paid each month before spending any. Then, you can only spend what’s left.

    Paying yourself first is an effective way to build your emergency fund or save for a financial goal. You can also use it to pay off debt by making extra debt payments as soon as you get paid.

     

    How to pay yourself first

    Follow these steps to implement pay yourself first in your own budget.

     

    STEP 1: CALCULATE YOUR INCOME AND EXPENSES

    First things first, write down your monthly income and expenses.

    If you’re a salaried employee, calculating your monthly income will be easy. If you have an irregular income because you’re self-employed or are an hourly or tipped employee, this will take a little more work. I recommend checking what your income has been for the past 3-6 months and taking the average amount.

    It should also be easy to figure out your fixed monthly expenses. These are the non-negotiable expenses you have to pay each month, like rent, insurance, and your student loan payment.

    Once you’ve calculated your fixed expenses, try to determine how much you spend on other expenses throughout the month. Your variable expenses will include things like groceries, dining out, transportation, clothing, etc. Your discretionary spending may change each month, but you can probably look back a few months and find the average.

    Read More: Creating a Monthly Budget: A Step-by-Step Guide

     

    STEP 2: SET FINANCIAL GOALS FOR YOURSELF

    One of the most important steps in paying yourself first (at least in my opinion) is setting financial goals.

    It’s easy to tell yourself that you’ll save money. But unless you really have a why behind your savings, it can be hard to stick with it. If you set a specific goal, you’ll have something to motivate you to follow through. 

    Savings goals you might save for include:

    • Building your emergency fund
    • Start saving for retirement
    • Saving for a new car
    • Saving for the downpayment on a home
    • Saving for a vacation
    • Renovate your home
    • Start a business
    • Reach financial independence

    You may have some short-term goals that you can reach in just a few months. On the other hand, some of your goals may be long-term goals that you won’t reach for several years. The method of paying yourself first can work for either type of goal.

    Read More: How to Set Financial Goals You Can Achieve

     

    STEP 3: DECIDE HOW MUCH YOU WANT TO SAVE EACH MONTH

    Once you’ve calculated your income and expenses and figured out what you want to save for, decide how much you’ll save each month. You want to make sure you’re saving enough to make a real difference but not so much that you don’t have enough money for your monthly spending.

    An easy way to figure out how much to save is to divide the amount you want to save by the number of months before you want to have it saved.

    Let’s say you’re planning a vacation next summer, and you expect to spend around $2,000. If the trip is 12 months away, just divide $2,000 by 12. You’ll find that you need to save roughly $167 per month for the next year.

    Of course, the amount you can pay yourself is also limited by your income. While you might love to buy a house next year, if it requires that you save $5,000 per month and you don’t earn that much, that financial goal may simply not be a reality.

    And in the case that you have multiple financial goals you’re saving for, as many of us do, then you’ll have to decide how you can either prioritize one goal or split your savings between the two. For example, I have the goal of financial independence that I’m always saving for, but I simultaneously save for other smaller financial goals at the same time.

    If you’re new to paying yourself first, you might worry about overspending and running out of money. If you’re just getting started, begin with a small automatic transfer.

    When I first started using this strategy, I did an automatic transfer of $50 the first week of the month. As I adjusted to my new spending limitations, I increased my monthly savings.

     

    STEP 4: AUTOMATE IT

    A great way to ensure you pay yourself first every month is to automate it. Set up an automatic transfer to go through a day or two after payday each month. That way, you’re saving regularly, and you don’t have to think about it.

    I can almost guarantee that if you don’t automatic it, you’ll often come up with an excuse for why you can’t save as much this month.

    And if you’re using the pay yourself first method to pay off debt, just set up an automatic payment each month for the amount you want to pay.

    The goal you’re working toward will determine where the automatic transfer is going. Depending on the goal, you might have your automatic transfer going to a savings account, a retirement fund, a taxable brokerage account, a debt account, or something else.

    Read More: 6 Easy Ways to Automate Your Finances

    As a quick tip, some employers allow you to set up your direct deposit so you can split your paycheck between multiple accounts. This strategy can be particularly useful in helping direct money to your savings account.

     

    Benefits of paying yourself first

    Paying yourself first is one of the best strategies to help you build your savings or pay off debt every month.

    Many individuals and families struggle to make progress on their savings. The most recent data shows that only about 39% of Americans would be able to cover a $1,000 emergency.

    Not only can paying yourself first help to prepare you for a financial emergency, but it can also help you make progress on your financial goals.

    The pay-yourself-first method is especially well-suited for people who struggle with spending. Think of it as a reverse budget. Rather than having to stick to your spending plan to save, you’ll be limited to spending what’s left after saving.

     

    Final Thoughts

    I know how frustrating it can feel to be so determined to save, and yet you somehow never manage to. Paying yourself first is one of the best ways to reach your financial goals, even if you’ve struggled to do so in the past. Trust me – your future self will thank you.

  • How to Use a Zero-Based Budget to Reach Your Goals

    When I started budgeting, I thought I was doing great.

    I had plenty of money left over in my budget after accounting for all my expenses, and I thought for sure I’d be able to save a lot and pay off my debt quickly.

    But somehow, the end of the month would roll around, and I never had any money left over.

    I just couldn’t figure out where all my money was going. Sure, I’d usually eat out more than I planned or make an impulse purchase here and there to buy new clothes. But surely it wasn’t enough to spend all of it.

    Why couldn’t I save when I knew I had wiggle room in my budget?

    It turned out that the key to changing my financial situation was zero-based budgeting. Rather than spending the extra money in my budget, a zero-based budget forced me to make a plan for each dollar I earned, including putting money toward savings and debt.

    In this article, I’m sharing what a zero-based budget is and how you can use one to reach your financial goals.

     

    How to Use a Zero-Based Budget to Reach Your Goals

    There are affiliate links in this post, meaning I may make a small commission at no additional cost to you. For more information, see my full disclosure policy here.

     

    Zero-based budget definition

    Zero-based budgeting is a way of planning your spending where you make a plan for each dollar. When you use a zero-based budget, you budget down to zero every month, meaning your income minus your expenses always equals zero.

    It’s important to note that budgeting every dollar doesn’t mean you spend every dollar. The purpose of zero-based budgeting is to help you pay off debt and save for goals because you include them as a line item in your budget.

     

    Zero-based budget advantages and disadvantages

    The biggest advantage of zero-based budgeting is that it forces you to be intentional about your spending. Rather than have a large sum of money available to spend each money, you can only spend money that you’ve actually budgeted for that purpose. 

    For anyone paying off debt or trying to reach a big financial goal, a zero-based budget is the best way to ensure you actually make progress each month.

    The biggest downside of zero-based budgeting is that it requires more time than traditional budgeting. You have to make a detailed plan for your money and then track every expense throughout the month to make sure you’re sticking to it.

     

    How to make a zero-based budget

    1. Write down your monthly income. If you’re a salaried employee, this should be easy. For freelancers and other workers with irregular income, start with your average monthly income.
    2. Write down your monthly expenses. Be sure to include fixed monthly expenses like rent and insurance, as well as variable spending like groceries and entertainment.
    3. Set financial goals. A zero-based budget only works if you decide ahead of time where your money is going. You should have specific financial goals to send extra money to. Your goal can be anything from saving for a big expense to paying off debt.
    4. Give every dollar a job. When you finish your budget, your income minus expenses should equal zero. This doesn’t mean you spend every dollar! It simply means that every dollar is either budgeted for spending OR budgeting for debt payoff or a financial goal.
    5. Work on getting one-month ahead. The zero-based budget is easiest to use when you’re one month ahead on your budget. In other words, you’re using last month’s income to pay this month’s bills. This is important because it ensures you know at the start of the month exactly how much you have to budget.

     

    Zero-based budget example

    I promise that zero-based budgeting sounds more complicated than it is. I’ll use a real-life example to show you how this type of budget works in practice.

    Let’s say your monthly take-home pay is $3,500. Using a normal budget, it might look something like this:

    Expense CategoryAmount
    Rent$1,200
    Utilities$90
    Insurance$125
    Student loan$250
    Transportation$150
    Cell phone$75
    Cable/internet$80
    Food$400
    Entertainment$125
      
    Total spending$2,495

    As you can see, this budget leaves a lot of wiggle room. You’d have $1,000 left each month that you could use to build your emergency fund, fund your debt payoff plan, or save for your financial goals.

    Unfortunately, that’s not usually how it works. Often we tell ourselves that we’ll use whatever money we have left at the end of the month to reach our goals.

    But because we weren’t intentional with our spending and didn’t make a plan for that money ahead of time, we simply find other things to spend it on. And then you might be lucky to have $100 left to put toward saving, let alone the full $1,000 you should have left.

    Here’s what a zero-based budget might look like using the same income and expenses:

    Expense CategoryAmount
    Rent$1,200
    Utilities$90
    Insurance$130
    Student loan$250
    Transportation$150
    Cell phone$75
    Cable/internet$80
    Food$400
    Entertainment$125
    Sinking funds$250
    Debt snowball$250
    Savings$500
      
    Total spending$3,500

    As you can see in the budget above, each budget is accounted for. You can’t impulse-spend a few hundred dollars on Amazon because you’ve already given that money a job.

     

    Zero-based budgeting with irregular income

    If you have irregular income, you might worry that zero-based budgeting won’t work for your situation. And it’s true that this budgeting style can be more difficult if you don’t know how much money you have available for the month.

    But I actually think this budget is perfect for those with irregular income.

    But here’s the catch.

    It really only works with irregular income if you get one month ahead on your budget. In that case, you can create a customized budget at the start of each month based on the money you earned the previous month.

     

    The best zero-based budget apps

    When it comes to planning out your zero-based budget, there are two different tools I’d recommend. You can choose the right tool for you based on your budgeting style.

    • You Need a Budget (YNAB): YNAB is hands-down my favorite budgeting app. With this zero-based budget app, you only budget with money you already have, and you give every dollar a job. It’s the app I personally use. It completely changes the way you think about budgeting, and really teaches you to be intentional about where your money is going.
    • Spreadsheet: Before I started using YNAB, I spent years using just a simple spreadsheet in Google Drive. It’s definitely more hands-on than an app, but perfect for someone really trying to turn their finances around.

     

    Final Thoughts

    I know how frustrating it can be to put a ton of work into a budget, only to have it fall apart halfway through the month. A zero-based budget is the best way to be intentional about where your money is going and help you reach your financial goals.

  • Using Debt Consolidation to Pay Off Credit Card Debt

    The average American family has more than $5,200 in credit card debt, according to the Experian 2021 Consumer Credit Review. And as a nation, we hold nearly $900 billion in credit card debt.

    This type of debt can be especially discouraging. The interest rates are notoriously high, meaning we end up paying back far more than we spent.

    Credit card debt can also often be a reminder of decisions that we aren’t particularly proud of, such as poor financial decisions in our younger years.

    While there’s no easy way to get out of credit card debt, a debt consolidation loan provides a way to pay your debt off a bit more quickly and save money in the process.

     

    Using Debt Consolidation to Pay Off Credit Card Debt

     

    What is debt consolidation?

    Debt consolidation is the process of taking out one loan to cover the balance of other debts. A debt consolidation loan is typically an unsecured personal loan — in other words, there’s no collateral attached to it. In the case of debt consolidation to pay off credit card debt, you’re taking out one personal loan and using it to pay off all your credit card balances.

     

    What is the purpose of debt consolidation?

    Debt consolidation is often used for the purpose of credit card debt.

    Credit cards have notoriously high interest rates, especially for younger borrowers. And the fact that many people have more than one credit card can mean they’re also making multiple monthly payments.

    If you have a lot of debt, you might be making sizable monthly payments on multiple cards, all at painfully high interest rates.

    Not to mention that having multiple monthly payments also means that you’re more likely to forget a monthly payment here and there, which can have major negative implications for your credit score.

    When you consolidate those credit cards into a single debt consolidation loan, you have one monthly payment and one (hopefully) lower interest rate.

     

    How does debt consolidation affect your credit?

    Anytime you borrow money, you can expect to see an impact on your credit score. In the case of a credit card debt consolidation loan, you’ll likely see both a positive and negative impact.

    First, you’ll probably see your credit score take a bit of a hit because of the hard inquiry on your credit report and the new debt account.

    But in the long run, it might actually help your credit score. When you consolidate your credit card debt into a single personal loan, you bring your credit card balances down to (hopefully) zero. As a result, your credit utilization goes way down.

    Additionally, as you make on-time payments on your loan, your positive payment history will help to slowly boost your credit score.

     

    Pros and cons of debt consolidation

    Debt consolidation comes with its fair share of pros and cons that you should be aware of before taking the leap.

     

    PROS

    • You’ll save money. Ideally, a credit card consolidation loan would have a lower interest rate than your credit cards. As a result, more of your money each month is going toward interest. You’ll save a lot of money in the long-run.
    • You’ll have fewer monthly payments. If you have multiple credit cards with debt, you likely have multiple monthly payments. A debt consolidation loan can help get you down to just one monthly payment.
    • You’ll boost your credit score. As I mentioned above, a debt consolidation loan can help to boost your credit score over the long run.

     

    CONS

    • You may still end up with a high interest rate. Because personal loans are unsecured, they still come with higher interest rates than other loans. And for someone with a low credit score, your rate might be just as high — if not higher — than the rate on a credit card.
    • You could pay fees. Many lenders charge origination fees on personal loans, meaning you’ll end up paying a bit more money.
    • It’s not the most cost-effective option. Depending on your credit score and the amount of debt you have, there might be a better way to pay off your credit card debt, which I’ll talk about in the next section.

     

    Debt consolidation alternatives

    A debt consolidation loan can be an effective way to pay off credit card debt faster, but it’s not my favorite option. Depending on your credit score and the amount of debt you have, you might instead consider a few other options.

    BALANCE TRANSFER

    A balance transfer is when you open a new credit card and transfer your existing credit card balance to the new card. Many credit card companies offer 0% interest from anywhere from 6 to 18 months for a balance transfer.

    With the 0% interest, you have the chance to pay down your credit card debt much more quickly, with none of your money going toward interest.

    To learn more, visit my guide on paying off credit card debt with a balance transfer.

     

    SECURED LOAN

    Another alternative to debt consolidation is to use a secured loan. The benefit of this is that secured loans generally have lower interest rates, meaning you’ll save even more money.

    Secured loans available for debt consolidation are usually those that use your home as collateral. Options include home equity loans, home equity lines of credit (HELOCs), and cash-out refinances.

    Of course, these options have a clear disadvantage: you’re using your home as collateral. If you fail to make your monthly payments, you could lose your home. I would think carefully before using your home equity to pay off debt, and only do it if you feel confident you’ll be able to make the monthly payments.

     

    DEBT SNOWBALL OR DEBT AVALANCHE

    You’re probably familiar with debt payoff methods like the debt snowball and debt avalanche. While the two have some differences, each is designed to help you prioritize and pay off multiple debts.

    Using the debt snowball, you prioritize your smallest debt. Using the debt avalanche, you prioritize the debt with the highest interest rate.

    Using one of these strategies may result in you paying a bit more in interest since you aren’t trading in your high credit card interest rates for a lower loan interest rate. However, they can still help you tackle your debt. And you may be motivated to pay it off more quickly.

     

    When is debt consolidation a good idea?

    Depending on your situation, a debt consolidation loan might be the right option to help you pay off your credit card debt. Here are a few situations where it’s probably a good idea:

    • You have too much debt for a balance transfer
    • Your credit score doesn’t make you eligible for a good balance transfer offer
    • You know you wouldn’t be able to pay off your debt during the 0% interest promotional period on a balance transfer card
    • It’s going to take you a long time to pay off the debt

     

    Final Thoughts

    As with any financial decision, it’s important to consider your unique circumstances when deciding if a debt consolidation loan is for you. For some people, it’s the perfect solution. But other people might be better served with an alternative.

  • 14 Good Financial Habits to Adopt in 2023

    More than 97 million people plan to set financial goals for themselves. But without a solid plan in place and the right habits to back it up, it can be challenging to reach those goals.

    Trust me – I was the queen of setting goals and new year’s resolutions for myself. But then, I would become disappointed that they would never come to fruition.

    That’s because I never took action to make them happen. I thought I could go from zero to 100. But without a solid plan in place and the right habits to back it up, reaching new goals can be challenging.

    In reality, reaching your goals has more to do with the habits you create. Whether your goal is related to your personal finances, your health, your relationships or anything else, your habits will ultimately determine whether you succeed.

    In this article, you’ll learn 14 good financial habits you can adopt in 2023 to help you reach your financial goals this year and beyond.

     

    14 Financial Habits to Adopt in 2021

     

    Track your spending

    To change anything in your finances, you need to know where you are now, including where your money is going.

    I never used to track my spending, yet I’d be confused as to how I ran out of money each month. When I finally sat down and tracked my spending, I was shocked.

    I learned I was spending a lot of my income on dining out and food delivery. I also learned that those small Target runs throughout the month were really adding up in my budget.

    Tracking your spending can open your eyes to where your money is going. It shows you where you’re overspending and can help you set a budget for the future.

    For me, tracking my spending helped me see where I was starting from so I could figure out where I wanted to go. It helped me get real about where I could cut back and how much I could start putting toward my goals if I did.

     

    Set financial goals

    I talk to so many people who tell me that they know they should be spending money, but they don’t know how much to save or how to do it. And even if they did know, they don’t really have the motivation to do so.

    This is what happens when you don’t have specific financial goals. It’s much harder to save when you really don’t know why you’re saving.

    But when you set financial goals, you know exactly why you’re saving and how much you need to save. For example, if I know I want to spend $3,000 on a vacation with my husband next year, I can figure out how much to save each month to make it happen.

    Plus, the thought of meeting your goal will provide all the motivation you need. If I know I have a dream vacation coming up next year, I’m probably going to be a lot more motivated to save than I would be without a goal.

     

    Schedule a weekly money date

    Checking in on your finances is so important. I sit down once per week and update my budget, record all of my expenses, and adjust anything I need to. I also sit down monthly to close out my budget for the month and plan the following month’s budget.

    Having a regular money date with yourself is a great way to stay on top of your finances. Put it on the calendar, so you never forget. 

    And if you share finances with someone else, you can have a regular money date to talk about your family finances. For my husband and I, money dates usually include us talking about what our spending looked like the previous month, what special occasions might be coming up in the next month, and any changes we’re considering making to our budget or finances.

     

    Pay yourself first

    For years I would tell myself that I would save all the money I had left at the end of each month. But the end of every month would roll around, and I’d somehow never have anything left.

    I finally learned the solution to this problem: paying myself first.

    When you pay yourself first, you decide ahead of time how much you want to save each month, whether it be in your emergency fund, retirement account, or toward a financial goal.

    Then, you transfer that money over to savings as soon as you get paid, before you have a chance to spend the money.

    I’ve found the best way to do this is to automate my savings so that I never have to remember to do it.

    Read More: How to Pay Yourself First and Finally Start Saving Money

     

    Budget one month ahead

    One of my favorite budgeting hacks is to be one month ahead with my budget.

    Most people budget with the current month’s income. In other words, they use their January paycheck to pay their January bills.

    But when you’re one month ahead on your budget, you use your January paycheck to pay February’s bills.

    This type of budgeting has tons of benefits. First, this one-month buffer serves as a small emergency fund. It also helps you to avoid timing your bills to your paychecks, as many people have to do.

    If you want to give it a shot, I have an entire guide on how to get one month ahead on your budget.

     

    Use your credit cards responsibly

    I love credit cards. I put just about everything on a credit card. The problem is that most people are using credit cards incorrectly.

    First, many people put their expenses on a credit card and then pay it off with the next month’s income. This means they’re spending money they haven’t even earned yet.

    Another habit people have is to charge things to their credit card but then not pay off the full balance.

    Here are a few rules of thumb for using credit cards responsibly:

    1. Only spend money you already have in your checking account
    2. Keep your credit card utilization below 30%
    3. Pay your balance off in full every month

    Read More: How to Use Credit Cards Responsibly

     

    Make more than your minimum debt payments

    When you have debt, it can be tempting to simply pay the minimum monthly payment the lender requires of you. That way, you have more money each month to spend on other things.

    The problem is that you end up spending way more money in the long run. Depending on the amount of debt you have, paying your debt off faster could save you hundreds, thousands, or even tens of thousands of dollars in interest.

    The sooner you pay your debt off, the sooner you have that money available each month to put somewhere else in your budget.

    And remember, there are other downsides to having debt. Suppose you wanted to buy a house. If you have too much debt, a lender is unlikely to approve you for a mortgage.

    Read More: Debt Snowball vs. Debt Avalanche: Which Strategy is Right For You?

     

    Avoid monthly payments

    Stores try to convince you to spend money by looking at a purchase as a monthly payment rather than as the full purchase price. New financial services allow you to use a monthly payment for just about everything these days, whether it’s a $1,000 computer or a $25 shirt.

    But remember that payment plans force you to spend more money in the long run. And you normalize the habit of having monthly payments.

    It’s better to pay for everything you can in full.

    Certainly, there are exceptions. When it comes to buying a house, you’ll almost certainly borrow money and have a monthly payment. But for smaller purchases, avoid monthly payments as much as possible.

     

    Continue to learn about money

    Even if you feel like you’ve got your financial shit down, there’s always room to learn more. Even though I have a lot of experience in personal finance and help coach others, I still regularly read personal finance books and listen to personal finance podcasts.

    As you reach certain goals, there’s likely more to learn for the next one. Let’s say you finally paid off all your debt and have learned to stick to your budget. Now it might be time to pick up a book on investing.

     

    Learn your spending triggers

    Everyone has their own spending triggers. For some people, a sales email in their inbox is a trigger. For others, it’s walking into Target. For others, it might be having a really bad day.

    One of the best ways to save money is to identify your spending triggers and find ways to combat them.

    Let’s say your spending trigger is sales emails from your favorite store. An easy way to combat this would be to unsubscribe from that store’s emails.

    I used to struggle with emotional shopping, especially as my first marriage was ending. When I was particularly upset, I’d spend money. I overcame that by dealing with my emotions head-on rather than looking for a different outlet.

     

    Maintain an emergency fund

    I think 2020 taught everyone the importance of having an emergency fund. Millions of people lost jobs this year, Congress dragged its feet in getting aid to the people who really needed it, and the pandemic resulted in huge medical bills for many families.

    Even if your finances weren’t affected by the pandemic, chances are you’ve had a financial emergency in the past that you struggled to pay.

    If you’re just getting started and have high-interest debt like credit cards to pay off, I recommend saving at least one month’s worth of expenses in your emergency fund. Eventually, you can work your way up to 3-6 months.

    The important piece is replenishing your emergency fund when you use it. Let’s say you’ve got an emergency fund of $5,000 and end up with $1,000 worth of car repairs. Your emergency fund is down to $4,000. Your next financial priority should be replenishing that $1,000 before you start saving for something else.

    Read More: How to Build an Emergency Fund and How Much to Save

     

    Meal plan

    Meal planning has been the single most effective way for me to cut down on grocery spending.

    If I go into the grocery store without a list, it’s pretty much a guarantee that I’m going to overspend. But if I make a meal plan and grocery list ahead of time, I’m good about sticking with it.

    Not only does meal planning help me only to buy the things I really need, but it also allows me to price meals out ahead of time so I know roughly how much I’ll spend.

     

    Give to causes you’re passionate about

    For many people, 2020 really showed the importance of financially supporting causes that are important to you. 

    Charitable giving in 2020 increased from the previous year, despite the financial struggles many faced. And a special provision in the tax law has allowed everyone to deduct up to $300 for donations, even if they don’t itemize their deductions.

    Chances are you already know which causes are most important to you, whether it’s combating climate change, protecting animals, promoting diversity, etc.

    Whatever it is, take a look at your budget and see if you can swing a small monthly donation to your favorite causes.

     

    Don’t try to keep up with the Joneses

    Everyone has probably heard the phrase “keeping up with the Joneses.” And most people probably brush it off, thinking it doesn’t apply to them.

    But you might be surprised.

    As we earn more money, we tend to subconsciously increase our spending to go with it — aka lifestyle inflation.

    We upgrade apartments or homes. We buy nicer cars. We eat at nicer restaurants than we did when we had our first jobs. We spend more on clothing, home decor, etc.

    There’s nothing inherently wrong with any of these things. In fact, I tell my coaching clients they should identify areas of their lives where they spend guilt-free — for Brandon and I, it’s live music and eating out.

    But it becomes a problem when you spend more in every category.

    A good way to combat this problem is to decide ahead of time how you’ll upgrade your lifestyle. If you get a raise, decide ahead of time which spending categories you’ll increase and which will stay the same. That way they don’t all increase without you noticing.

     

    Final Thoughts

    2023 can be the year you finally turn your finances around and reach all of your goals. By implementing just a few of the good financial habits on this list (or more than a few), you’ll be amazed at the progress you see.

  • How to Increase Your Income in 2023

    When my husband and I got married, we knew the only way we would be able to pay off our six-figure student loan debt while also saving for our other goals was to increase our income.

    Finding ways to save money is great. But you can only cut so much from your budget. And we knew we wanted to continue to enjoy hobbies like travel, eating out, and seeing live music while paying off our debt.

    More and more often, I hear from other millennials looking to find ways to increase their income to help them reach their financial goals.

    In this article, I’m rounding up a few of my favorite tips for how to boost your income in 2023.

     

    How to Increase Your Income in 2021

     

    Ask for a raise

    If you love your current job, then asking for a raise is one of the best ways to increase income while continuing to do what you love. 

    While I know trying to negotiate your salary might sound stressful, look at the positives. Increasing your salary now increases your entire career income projection, meaning you’ll make more money over the course of your working life AND set aside more for retirement.

    Before you approach your boss about a raise, there’s some prep work you’ll need to do.

    1. Start by making a list of your job responsibilities. Write down everything you do in your job, either on a regular or irregular basis.
    2. Next, collect your recent performance reviews. Chances are, your company has some sort of review process in place. If not, gather other written positive feedback you’ve gotten, both from your boss and others. While you’re at it, make a list of any major accomplishments or successes you’ve had in your job.
    3. Do some research online about the average salary for your position. How much are other people making in the same type of position as yours? Another step I’d recommend is asking your colleagues, especially your male colleagues, if you’re a female, how much they make. Bringing this up might sounds scary. But when I finally got up the nerve to speak to a few of my male colleagues about salary, I found that multiple men were making more money than me in similar roles, and I had more responsibility than they did. Even today, the wage gap is still something we’re dealing with.

    Once you’ve done all your prep work, set up a meeting with your boss. I’d recommend telling them upfront that you’d like to meet to discuss a pay raise. That allows both of you to go to the meeting a bit more prepared.

    Once you’re in the meeting, sit down with your boss and tell them that after going through your list of tasks, your reviews, and your accomplishment, you feel confident that you’ve made valuable contributions to the team and would like a raise. 

    Give a specific percent increase. Most raises are about 3%, so ask for a little more, like 5%.

    If your boss has hesitations, you can talk about the conversations you had with your coworkers and the research you did online, showing that people in your role are being paid more than you are. 

    You can also ask some follow-up questions, such as what is causing them to hesitate and how long someone normally works in your role before getting a raise. 

    During this meeting, keep the conversation focused on the job and your accomplishments in it. Don’t bring your personal finances into the mix. Companies don’t give raises because people are trying to pay off debt — they give raises to people who make valuable contributions.

    Ultimately, whatever the final answer is, be gracious and polite and thank them for their time. The worst answer you can get is no. But if you’re rude or don’t take the word no well, then you might damage your reputation with your boss and the company.

     

    Find a new job

    Getting a raise in your current job is a great way to increase income, but it’s not right for everyone. Some people may not be able to earn as much as they’d like in their current company or line of work. And for those who really dislike their job, more money may not be enough to make up for it.

    Instead, you might consider finding a new job altogether. Here are a few steps to take:

    1. Consider the type of job you want. Before you start applying for jobs, spend some time thinking about what you really want. Ask yourself if you want to stay with the same company and simply apply for a higher-level job. Or maybe you want to switch careers altogether.
    2. Research the job market. Do your homework about the career you want and the current job market. Learn about the types of jobs available, the top companies, and the salary you might expect to get.
    3. Update your resume and LinkedIn profile. Update your LinkedIn resume so it will attract recruiters. When it comes to actually applying for jobs, create one that is tailored to each job you apply for.
    4. Reach out to your network. Once you’re ready to start looking, connect with people in your network. Let people know that you’re in the market for a new job and ask them to keep an eye out for any opportunities.
    5. Talk to recruiters. Depending on your field, there may be plenty of recruiters who specialize in finding candidates for jobs like the ones you want. You can contact recruiters directly or connect with them on LinkedIn.
    6. Apply consistently. Job hunting can be discouraging, especially if you find that it’s taking longer than you hoped. Find a few job boards that you find the best jobs on, and visit those consistently. Eventually, your hard work will pay off!

     

    Get a part-time job

    A part-time job might not sound like the most glamorous way to make money, but it’s effective and consistent. So many people are on the lookout for the next popular side hustle that they forget that getting a normal part-time job is an option. 

    While my husband and I were starting our debt payoff journey and saving for our RV, I was working full-time in politics while working on my business as a side hustle. My husband, in the meantime, worked as a bartender a couple of nights per week. It was a fairly easy job and one that he liked, and he was able to make an extra $1,000 per month.

    There are plenty of part-time jobs available in food service and retail. Depending on your skill set, you might also be able to find something more specific to your career and earn even more money.

     

    Join the gig economy

    While there’s no technical definition here, the Bureau of Labor Statistics describes a gig as “a single project or task for which a worker is hired, often through a digital marketplace, to work on demand.”

    These types of jobs are contract positions, and most allow you to work whenever you’re available rather than abiding by a schedule like a part-time job would require. 

    Examples of gig jobs would include:

    • Rideshare opportunities like Uber and Lyft
    • Grocery shopping and delivery through companies like Instacart
    • Food delivery with Doordash, Postmates, UberEats, etc.
    • Pet sitting and walking with Rover or Wag
    • Tackling specific tasks with sites like Fiverr or TaskRabbit

    These side hustles can be great for anyone who wants to be able to make extra money on demand. With a part-time, you’re usually subject to a set schedule. But these apps allow you to work and make money when it fits with your schedule.

     

    Start a business

    The final strategy I want to talk about for making extra money (and my personal favorite) is to start an online business.

    Now let me preface this by saying that if you’re just interested in picking up some extra income right now to help you on your debt payoff or savings journey, then this probably isn’t the right choice for you.

    Depending on the type of business you want to start, there are likely going to be some start-up costs. Plus, it could be a while before you really start making money.

    I can tell you that I put hundreds of hours of work into my business before I made money. At the same time, if you’re looking for something sustainable that you can build over many years, I love this idea. 

    Starting a business involves selling something, whether you’re selling a physical product, a digital product, or a service. I run a service-based business. I provide money coaching to clients and provide freelance writing services to financial companies. 

     

    SERVICE-BASED BUSINESS

    Starting a service-based business is fairly low-cost and doesn’t require a lot of upfront work. What it does require is for you to have a specific skill that you’re offering to your clients.

    Here are the steps you can follow to start your own service-based business:

    1. Step one pick a skill. For me, it’s writing and coaching. For others, it’s social media management, photography, ad management, web design, editing, or a million other options.
    2. Step two is to hone your skill. Depending on the skill you choose, this might be a little or a lot of work. When I decided to become a freelance writer, I already had a degree in journalism and had been writing on my own blog for years. There wasn’t a huge learning curve. But I did have to learn how to freelance write for other sites. But some people might decide to start a service-based business doing something they’ve never done or haven’t done in years. In that case, you may want to take an online course or find an online certification to help boost your skills.
    3. Step three is to build your portfolio. Once you’ve honed your skills, start putting together work to show potential clients. This might require doing a bit of free work. If you’re starting a business as a social media manager, you could reach out to friends or family members who own businesses and ask if you can manage their social media for a while in exchange for testimonials. When I was starting to freelance write, I was able to use my blog as my portfolio. The bottom line is that you need to find a way to display your work and prove to potential clients that you can do the job.
    4. Step four is to start marketing your business. You can do this through social media or by directly reaching out to potential clients. When I started freelance writing, I just started emailing sites I wanted to write for and asking them if they needed more writers. It was surprisingly effective. For my coaching business, I do things differently. I don’t just email women and ask if they want a money coach. Instead, I share value on social media by offering personal finance tips and then sharing information about my program for people who want to work together one on one.

    So that’s how you can get started with a service-based business. I’ve found that’s the type of business that was the best fit for me. It’s my favorite way to make money.

     

    PRODUCE-BASED BUSINESS

    If that’s what you’d like to pursue, start by considering what product you’d like to sell. Maybe you’re good with crafts and want to handmake something to sell. Or maybe you’re good with graphic design and want to start selling printables.

    Once you figure out what you want to sell, figure out where you’d like to sell it. Etsy is a great marketplace for both physical and digital products. You can also decide to sell your product on your own website using a program like Shopify or WooCommerce. 

    And just like with starting a service-based business, the final step is to start marketing your product online.

    Now, this is obviously a simplistic explanation for how to start a business. There’s so much more that goes into it. If you’re serious about doing this, I recommend seeking out an online course to help you get started.

     

    What to do after you increase your income

    Once you actually take steps to boost your income, I encourage you to think about what you’ll do with that extra money.

    When your income increases, it can be tempting to spend all of that money. But chances are you’ve got some financial goals you want to save for. Deciding ahead of time how you’ll use the best way to ensure you don’t waste it.

    And once you start bringing in money, follow through on your plan. You’ll be happy that you did!

     

    Final Thoughts

    Increasing my income has been one of my favorite ways to reach my financial goals even faster. It helps me to save more without necessarily having to cut everything I love from my budget.

  • Traditional IRA vs. Roth IRA: Which is Better?

    One of the most common questions I get from people who are ready to get serious about investing is the best tool to use.

    Of course, many of us get our start investing in a workplace retirement plan, such as a 401(k) or 403(b). But there are also options to help you invest for retirement outside of your employer. Those options include a traditional IRA and Roth IRA.

    Both traditional and Roth IRAs come with some advantages and disadvantages, especially as it relates to your taxes. As a result, each may be best suited to a certain type of investor.

    In this article, I’ll explain the differences between the two types of retirement accounts and how to choose the right one for you.

     

    Traditional IRA vs. Roth IRA: Which is Better?

     

    What is an IRA?

    An IRA (which stands for individual retirement account) is a tax-advantaged investment account to help you save for retirement. Unlike 401(k) plans, which are offered through an employer, IRAs are for individuals to invest on their own.

    You can open an IRA at just about any brokerage firm. Once you open the account and start contributing money, you can decide how you want to invest the money within the account.

     

    Why open an IRA

    If you already have a 401(k) through your employer, you might be wondering why an IRA is necessary at all. There are a few reasons why I recommend everyone open an IRA, even if you have an employer-sponsored retirement plan:

    1. An IRA allows you to invest above and beyond the 401(k) contribution limits
    2. An IRA allows you to diversify your tax advantages — If you have a traditional 401(k), you can open a Roth IRA, and vice versa
    3. An IRA gives you more control over your investment decisions

     

    What is a Traditional IRA?

    A traditional IRA is similar to a 401(k). You can contribute to the account throughout the year and then take a tax deduction for your contributions. Contributing to a traditional IRA reduces the amount of taxes you owe in that year.

    The money grows in the account. Once it comes time to take money out during retirement, you’ll pay income taxes on your withdrawals.

     

    What is a Roth IRA?

    A Roth IRA is also a tax-advantaged retirement account, but you get the tax advantage at a different time.

    When you contribute to a Roth IRA, you do so with after-tax money. There’s no tax break in the year you contribute the money. The money grows in your IRA, and then you can withdraw it tax-free during retirement.

     

    Similarities and differences

    Traditional IRAs and Roth IRAs have a lot in common, but there are also some key differences you need to know. Here’s a table to explain all of the similarities and differences:

     

     

    Traditional IRA

    Roth IRA

    Contribution Limit

    $6,000

    $6,000

    Eligibility Requirement

    Available to anyone

    Available to individuals with income $144,000 or lower (single filers) or $214,000 (joint filers)

    Tax-Deductible Contributions

    Yes*

    No

    Tax-Free Withdrawals

    No

    Yes

    Withdrawal Penalties

    Early withdrawals on contributions and earnings taxed at 10%

    Early withdrawals on earnings taxed at 10%; No penalties for early withdrawals of contributions

    Withdrawal Requirements

    No required withdrawals

    Required minimum distributions starting at age 72

    Best For

    People who expect to be in a lower tax bracket when they retire

    People who expect to be in a higher tax bracket when they retire

    *For the traditional IRA, whether you can deduct your contributions depends on your annual income and whether you have a retirement plan through your employer. If you don’t have a workplace retirement plan, you can deduct your contributions no matter what your income. If you have a workplace retirement plan, you can no longer deduct your contributions once your income reaches $78,000 for a single filer and $129,000 for a married filer.

    Should I choose a Traditional IRA or Roth IRA?

    Plenty of people find themselves overwhelmed when choosing between the traditional IRA and the Roth IRA. It ultimately comes down to your personal financial and tax situation.

    Ultimately, it depends on your financial situation today compared to what you expect your financial situation to be in the future. 

    Traditional and Roth IRAs give you a tax advantage at different times. A traditional IRA gives you a tax break in the year you make the contribution. Because you can deduct your contributions, your taxable income – and, therefore, the amount you owe in taxes – is lower.

    As a result, a traditional IRA may be the right option for someone with a high income today who expects to have a lower income during retirement. You take the tax benefit now while your tax rate is high rather than later when your tax rate will be lower.

    On the other hand, a Roth IRA tends to be a great option for people early in their careers who expect their incomes to grow. You can pay the full tax amount in the current year when your tax rate is relatively low. Then, you won’t have to pay taxes when you withdraw the money when your tax rate may be higher.

    If you’re still struggling to choose the right IRA, you can use a Roth vs. traditional IRA calculator where you enter some basic financial information, and it recommends the right retirement savings tool for you.

    INCOME LIMITS ON IRAS

    As a caveat to the information about, there are certain income limits applied to IRAs.

    We’ve already addressed the income limit on deducting your contributions to a traditional IRA. However, there is also an income limit on contributions to a Roth IRA. If your income is higher than the limit, you can’t contribute directly to a Roth IRA.

    These income limits may impact which IRA you choose. After all, there’s no use contributing to a retirement account if you won’t get the tax benefits. If income limits prevent you from taking advantage of these accounts or fully enjoying the benefits, it may be worth choosing a different option or contributing more to your workplace retirement plan.

    As a final note, self-employed individuals have more options aside from the traditional and Roth IRA. Learn more about how to save for retirement when you’re self-employed.

     

    Final Thoughts

    Choosing the right type of retirement account can be overwhelming. Hopefully, this explanation of the differences between the traditional IRA and Roth IRA will help you find the right account for you.

    And remember — both of these accounts help you to save for retirement in a tax-advantaged way. As long as you’re setting money aside for the future, you’re on the right track.

  • Creating a Monthly Budget: A Step by Step Guide

    I was in my mid-twenties before I created my first budget.

    I was out of college and had my first full-time job. I made decent money, but I never seemed to have any left at the end of each month. And I couldn’t seem to figure out where all my money was going.

    When I finally sat down to track my recent spending, it was an eye-opening experience.

    I realized I was spending way more than I wanted to on eating out and ordering take-out.

    That’s when I created my first budget. It hasn’t been entirely smooth sailing since then. But I can tell you that the times of my life I’ve been most diligent about monthly budgeting are the times when I’ve seen the most success!

    When I budget consistently, I reach my financial goals, feel confident in my financial situation, and have money left over at the end of each month.

    Creating and sticking to a budget does not have to be overwhelming. It doesn’t have to be scary. It is 100% doable.

    In this post, I’m walking you through how to create a monthly budget, even if you’re a beginner or hate budgeting.

     

    Creating a Monthly Budget: A Step by Step Guide

     

    Determine your income

    In order to create your monthly budget, you first need to figure out what your monthly income is.

    For some of you, this will be easy. Maybe you’re a salaried employee without any side income, in which case your income is the same every month.

    But if you’re an hourly employee, a tipped employee (such as a server or bartender), or are self-employed, this will be a little more difficult.

    If you have an irregular income, look at the average amount you bring home each month. This will help you identify which number to build your budget around.

    Read More: How to Budget With an Irregular Income

    If you’re married and have joint finances with your spouse, make sure to incorporate their monthly income into your calculation as well.

     

    Make a list of your fixed expenses

    Next up, make a list of your fixed monthly expenses. Fixed expenses are those that are the same every month. This would include rent or mortgage, insurance, cable and internet, student loan, car payment, etc.

    It’s important to plan for these expenses first because then you’ll have a better idea of how much money you have to allocate for the rest of your expenses.

     

    Track your spending for the past three (or six) months

    Once you’ve figured out your income and fixed expenses, you know how much money is left to put toward variable expenses.

    In order to really figure out how much you want to spend in each budget category, I think it first makes sense to figure out how much you’re currently spending in each category.

    Go through your bank statements for the past three months and track where your money has gone. I would break your spending up into categories and determine how much you’ve spent monthly in each category. Here are some categories you may want have:

    • Utilities
    • Transportation (gas, car maintenance)
    • Groceries
    • Eating Out
    • Shopping
    • Household Items
    • Personal Care
    • Entertainment
    • Hobbies

    These are just some examples of categories you might have in your budget. You can customize them to fit your lifestyle.

    By doing this, you’ll get a good idea of where your money has been going and which categories you spend the most on.

    I recommend going back at least three months to really get an idea of what an average month looks like.

    If you’re feeling really ambitious, go back even further. The first time I put together a monthly budget, I went back six months and it helped me put together a really good picture of my spending habits.

     

    Determine your spending goals

    Now that you know how much you are spending, it’s time to figure out how much you want to be spending.

    I’m guessing there are quite a few areas in your budget where you could be spending a lot less than you are.

    If you don’t normally track your spending, chances are that you’re going to be surprised at your spending in some areas, just like I was at my food spending.

    You might realize just how much those weekly Target trips are adding up and decide that you want to set some limits for yourself.

    You can also look for substitutions you can make, such as switching phone companies or getting rid of cable and sticking with Netflix or Hulu.

    I do think it’s important to be realistic when setting your spending goals. For example, if you’re currently spending $750 per month on food, I don’t think it’s realistic to set a spending goal of $250. However, you might start by aiming to spend $650 or $600 per month.

    Also, remember that setting spending goals doesn’t have to mean cutting out unnecessary spending. It’s okay to spend money on things you value, even if other people see them as unnecessary. For example, my husband and I love to eat out, so we leave a lot of room for that in our budget.

     

    Prioritize savings first

    There are a lot of people who wait to see how much money they have in the bank at the end of the month and then decide if they are able to throw a little in savings.

    The problem here is that there might be a lot of months where you aren’t putting any money in savings at all.

    Instead of just saving what you have left at the end of the month, start budgeting the money you’ll save and making that your first payment after you get paid. I have an automatic transfer from my checking account to my savings account the day after I get paid every single month.

    To make your saving even more effective, set specific goals to save for. You can start by building up your emergency fund. Then you can decide what other financial goals you want to save for.

     

    Decide on a debt-payoff plan

    While you’re creating your monthly budget, it’s important to factor in how much money you want to put toward debt.

    While it might be tempting just to pay your minimum monthly payments, it will take you a lot longer to pay off that debt, and you’ll be spending a LOT of interest.

    One debt payoff strategy a lot of people use is called the “snowball method.” This means paying your minimum payments on all but your smallest debt and you put as much money as you can into your smallest debt.

    Once that smallest debt is gone, you take all of that extra money and put it toward the new smallest debt. And then, ideally, once you’ve paid off most of the debts, you’ll be able to put really large payments on your largest debt.

    I actually prefer a method called the debt avalanche. Rather than targeting the debt with the lowest balance, you target the one with the highest interest rate.

    The debt snowball is the most cost effective in the long run, because you’re saving yourself money in interest.

    Read More: Debt Snowball vs. Debt Avalanche: Which Debt Payoff Plan is Right For You?

     

    Track your spending

    Once you’ve created your monthly budget, it’s important to track your spending to make sure you’re actually staying on track. Otherwise, the budget is useless!

    There are plenty of monthly budgeting apps you can connect to your bank account to track your spending. Many people use an app for this. For many years I just used a spreadsheet and tracked each transaction manually. This is definitely more work, and now I use an app to track my spending.

    You can check out my list of the best budgeting apps to help find the right tool for you.

    As you’re tracking your spending, check in often throughout the month to make sure you’re staying on track with your budget. That way, if you get off track with your budget, there’s still time to get back on track.

     

    Reevaluate your budget often

    Once you’ve set up your budget once, you’re not done. A lot can change with your finances. You might have new financial goals come up, such as wanting to splurge on a vacation or start saving for a house.

    You also might create a budget and then within a few months, realize there are certain categories that need some tweaking.

     

    Bonus Tip: Find the right budgeting app

    Some people are fine with a spreadsheet or plain or pen and paper for their budget. In fact, that’s how I started out. But I eventually found the value there is to be had from a budgeting app.

    One benefit of a budgeting app is that you can automatically import your bank and credit card transactions to track your spending. This allows you to see how well you’re sticking to your budget.

    There are also budgeting apps that have special features such as the ability to set up sinking funds, calculate your net worth, or calculate your progress toward debt payoff or your financial goals.

    Read More: The Best Budget Apps to Help You Manage Your Money

     

    Final thoughts

    Creating a monthly budget might seem overwhelming, but I promise it will get easier as you get the hang of it.

    And even more importantly, you will be SO glad you took the time to set up a budget, and you’ll love the financial benefits you start to see.

    Monthly budgeting will go a long way in helping you to start saving money, pay off your debts, and reach your long-term financial goals.

  • What is Net Worth (And Why You Should Care About It)

    I didn’t start tracking my net worth until I was in my late twenties. If I’m being honest, I didn’t think it was all that important. I thought my income was the metric that really mattered.

    But here’s the problem with that: your income is just a snapshot of your finances. It doesn’t show the big picture.

    And by not paying attention to my net worth, I was able to conveniently ignore my lingering debt and low savings rate.

    But once I started tracking my net worth each month, I really saw my finances start to transform. I felt more motivated to make extra debt payments and move money into my savings account.

    Not sure what net worth is or why you should care about it? Not sure how net worth is calculated? Stay tuned, because we’re going to cover all of that in this article.

     

    What is Net Worth (And Why You Should Care About It)

     

    What is net worth?

    Your net worth is the difference between your assets and your liabilities. It’s one of the most important financial metrics there is. It helps to measure your overall financial picture and track your progress toward meeting your financial goals.

     

    How do you calculate net worth?

    Your net worth is the difference between what you own and what you owe. And with a little math, it’s easy to figure out on your own. Here’s how to get started.

    1. Add up all of your assets. This includes money in your bank and investment accounts. It also includes the dollar value of any assets you own such as real estate, vehicles, or valuable collectibles.
    2. Add up all of your liabilities. Your liabilities include any money you owe. This could include student loans, credit card debt, car loan, mortgage, medical debt, back taxes, and anything else you owe.
    3. Subtract your liabilities from your assets. The difference between these two numbers is your net worth. The formula looks like this:

    Assets – Liabilities = Net Worth

     

    SEPARATE YOUR NET WORTH FROM YOUR SELF WORTH

    Thanks to student loans, most people today (nearly 70%) graduate from college with significant debt. And unfortunately, this means they’re also graduating with a negative net worth.

    Adding up your net worth for the first time and finding that it’s negative can be shocking and, frankly, a punch to the gut. Trust me, I went through that feeling myself.

    As you calculate your own net worth, please separate your net worth from your self-worth. Your net worth is just a number. It says nothing about you as a person or your value as a human. About one in five households have a net worth that’s either zero or negative.

    You can take steps to increase your net worth, but don’t wait until you do to value your self-worth.

    Read More: How to Develop a Positive Money Mindset

     

    Why is net worth important?

    You might find yourself wondering why your net worth really matters. That was me for years. I thought that my income level was far more important. After all, it had more of an impact on my day-to-day life.

    But your net worth is actually super important! It represents the big picture of your finances and gives you an idea of how you’re using the money you make.

     

    IT TELLS YOU WHETHER YOU’RE MOVING IN THE RIGHT DIRECTION

    One of the benefits of tracking your net worth every month is that you can start to notice a trend. Does the number get bigger every month? Then you’re moving in the right direction by paying off debt and increasing your savings. But if the number gets smaller each month, it’s time to make some changes.

     

    IT TELLS YOU HOW PREPARED YOU ARE FOR THE FUTURE

    People often use income as the most important metric in their finances. But your income isn’t guaranteed. If you lose your job tomorrow, you’ll be stuck relying on your savings to pay the bills. And considering many Americans are living paycheck to paycheck, the amount of money they were making no longer matters when the job is gone. 

    Your net worth gives you an idea of just how prepared you are to deal with a financial emergency like a job loss, as well as how prepared you’ll be for retirement.

     

    IT PUTS YOUR DEBT INTO PERSPECTIVE

    It’s easy to ignore your total debt and just focus on the monthly payment. This might feel better at the moment, but it doesn’t help you to pay it off any faster. By calculating your net worth, you’re forced to come to terms with the impact your debt has on your overall financial picture.

     

    IT MAY BE A FACTOR WHEN YOU’RE APPLYING FOR A LOAN

    When you borrow money, lenders want to know you’re going to be able to pay back what you owe. If you already have significant debts and not many assets, then a lender may see you as a bigger risk. You could end up being denied a loan, or get approved for a loan but have a high interest rate.

     

    How to grow your net worth

    You might be a little discouraged seeing your net worth for the first time — I know I was! For those of us graduating from college with debt, it can be discouraging to start adulthood with a negative net worth. But there are plenty of ways to boost it!

    • Pay off debt. All of your debt counts as a liability in your net worth. The fewer liabilities you have, the higher your net worth is. As you pay down your debt, you’ll see your net worth increase.
    • Automate your savings. I used to struggle so much with saving. I’d tell myself that I’d save whatever I had left at the end of the month, but then there would never be anything left when that time came. The easy solution? Automation. Set up an automatic transfer from your checking account to your savings account right after payday and you never have to worry about spending that money on something else first.
    • Start investing. Investing is a great way to boost your net worth even faster than just saving. Because rather than just having your money sitting there and adding a bit to it each month, it’s growing without you having to do anything. 
    • Cut your expenses. One of the reasons people don’t see their net worth grow each month is that, even though they make good money, they spend it all each month. By reducing your expenses each month, you can start to see your net worth grow.
    • Increase your income. Cutting expenses is great and all, but you can only do it to a point. You still have bills to pay. Plus, you don’t want to cut everything you enjoy from your budget. Instead, you can increase your income to start saving more.

    Read More: How We’re Planning to Pay Off Six Figures of Debt

     

    Tools to help you track your net worth

    Tracking your net worth regularly is an excellent way to check in on your progress and make sure you’re moving in the wrong direction. But I’m guessing you don’t want to sit down and do the math each month! Here are a few ways you can easily track it:

    1. You Need a Budget: My favorite budgeting app also happens to have a reports feature where you can track your net worth. I love watching mine change each month as I increase my savings and pay off debt!
    2. Personal Capital: This digital tool is also great for tracking your net worth. You link all of your bank, debt, and investment accounts. Then your financial dashboard reports your net worth. Plus, it’s free, so if you aren’t already using a budgeting app like YNAB, then Personal Capital is a great alternative.

     

    Final Thoughts

    I spent years thinking my net worth wasn’t really important. I focused solely on my income as a measure of my financial success. It wasn’t until I started tracking my net worth that I was able to look at the big picture and start seeing progress in my finances — progress that’s going to serve me in the future.

  • What is a Money Date + Why You Should Plan One Now

    When Brandon and I got engaged, we had some pretty lofty goals.

    We planned to plan and pay for a wedding in four months, travel to Spain for our honeymoon, pay off our non-student loan debt, and save for an RV to travel the country.

    Oh yeah, and we hoped to do it all within one year.

    While it might sound farfetched, we checked everything off this list within one year of getting engaged. And one of the most important factors I attribute to us reaching all of our goals?

    Money dates. We communicate openly and respectfully about money, and we do it often.

    I put together a guide for you to answer the questions of what is a money date and why you should plan one now to take your finances to the next level.

     

    What is a Money Date + Why You Should Plan One Now

     

    What is a money date?

    A money date is a regularly scheduled conversation between you and your partner where you discuss finances. They’re an opportunity to talk about your day-to-day finances, as well as prepare for any short or long-term financial plans.

     

    Why plan a money date

    A money date might not exactly be your idea of a romantic evening, but they’re important in maintaining a healthy relationship and healthy finances.

     

    THEY TEACH YOU TO TALK ABOUT MONEY

    First, having regular money dates gets you in the habit of talking about your finances often. And as with anything else, the more you practice, the better you get.

    Money dates also allow you to be proactive about talking about finances in a confrontation-free way. 

    Here’s how most couples communicate about money:

    They don’t really talk about it until a problem comes up. Maybe one of you overspend, you were late on a bill, or you were hit with an unplanned expense.

    When this is the case, you’re pretty much only talking about money when it’s bad news or you’re fighting. This trains your brain to believe that money is a source of conflict, and talking about money means fighting.

    Then, as your relationship progresses, you both go out of your way to avoid talking about money. This can lead to financial infidelity. It also means you’re unlikely to meet any of your financial goals together because you aren’t setting them in the first place.

    Read More: How to Talk to Your Partner About Money Without Fighting

     

    THEY HELP YOU STAY ON TOP OF YOUR FINANCES

    Even for couples who can easily talk about money, these money dates are a good way of making sure you’re staying on top of any financial changes. 

    Let’s say you and your partner set up a budget together when you got married. But a few years later, your life might look totally different. Maybe your income has increased or you’ve changed the way you spend your free time. Chances are your budget could use some refreshing. 

    Regular money dates help you to stay on top of those changes so your financial plan always fits with the rest of your life. 

     

    THEY ENSURE EVERYONE HAS A SEAT AT THE TABLE

    Finally, money dates make sure that everyone has a seat at the table. In most relationships where the couple has joint finances, there’s one person who is responsible for managing the finances. It’s also likely that one person makes more money than the other. 

    Both of these factors can cause one or both partners to feel like they don’t have equal say. Money dates can help avoid this.

    For part of mine and Brandon’s marriage, we have had a large income disparity. But in both of our eyes, we were a team, and each had equal say in our financial decisions. I believe that was possible only because of how often we communicate about money.

     

    How to plan a money date

    Now that we’ve talked about what a money date is and why it’s important that you have them, let’s talk about how to plan one.

     

    1. PLAN YOUR MONEY DATE IN ADVANCE

    I promise you that your partner isn’t going to appreciate you springing this on them, especially if you two don’t talk about your finances often. So schedule it in advance and put it on your calendar. 

    If you’re feeling particularly ambitious, you can even come up with a day of the week or month that works for both of you and set this as a recurring event.

     

    2.  MAKE YOUR MONEY DATE AS DATE-LIKE AS POSSIBLE

    One of the reasons so many of us hate talking about money is that we have negative memories associated with it. Maybe it’s that we normally only talk about money when we’re fighting, so we associate money with fighting.

    You want to make your money dates a time to enjoy. Throw on your favorite music. Eat your favorite food. Drink your favorite cocktail. If you have a favorite restaurant together, have your money date there. 

    The key is to make this an enjoyable experience so you don’t dread it.

     

    3. SHOW UP TO YOUR MONEY DATES PREPARED

    Finally, show up to your money dates prepared. Have an agenda of things you’ll discuss, and be ready with your laptop or notebook so you can do any budgeting or notetaking that you need to.

     

    What to talk about on your money date

    Now that I’ve gotten you on board with the idea of a money date, you might be wondering what you should actually plan to talk about. You might even feel like you don’t have enough to discuss to warrant scheduling time. But there are plenty of things you can discuss!

     

    TALK ABOUT EVERYTHING THAT HAS HAPPENED SINCE YOUR LAST MONEY DATE

    First, this means going over last month’s budget and seeing how well you stuck to it. If you didn’t stick to the budget, identify areas where you struggled and what changes you can make to ensure you’ll stick to the budget next month.

    There may be other things that have happened outside of your budget, too.

    Maybe one of you got a raise, and you want to discuss how you’ll allocate that new money in your budget. Or maybe one of you is feeling particularly burned out in your business, and you want to figure out if you can still meet all your financial obligations if you pull back at work a little. 

    You want to make sure you’re covering everything happening in your finances right now.

     

    CHECK IN ON YOUR PROGRESS FOR YOUR FINANCIAL GOALS AND DEBT PAYOFF PLAN

    You can use a digital or printable tracker to monitor this. On the topic of financial goals, you can also use your money date to talk about new financial goals. 

    You aren’t going to have new goals to discuss at every money date, but this is the perfect time to talk about anything new you’d like to start setting aside money for.

    Talking about your progress helps to ensure you’re staying on track. If something held you back from making much progress, you can acknowledge that and come up with strategies to address it.

    You might also discuss working a bit more aggressively toward your financial goals (or taking your foot off the gas pedal a bit).

     

    BE READY TO HAVE TOUGH CONVERSATIONS

    Now whether you’re married or dating, I’d be lying if I said that money dates won’t sometimes lead to arguments. Money can be an incredibly sensitive topic, and it’s likely that you and your partner won’t see eye to eye on anything. Be sure to come to these dates with an open mind.

    Additionally, be solution-focused. Let’s say that you and your partner have a money date and discover that they overspent last month. 

    Judging or berating them isn’t going to change what happened. Rather than focusing on the problem (your partner overspending) focus on possible solutions.

    During these money dates, it’s important to use the opportunity to bring up anything that might be weighing on you. Sure, confrontation – especially around money – can be uncomfortable. But it’s far worse to let it continue to weigh on you and eventually become an even bigger problem.

     

    END ON A HAPPY NOTE

    As I said earlier, you want to make sure that these dates create positive associations around money. If they always end with fighting, you probably aren’t going to stick with them very long. 

    End the date by celebrating your financial wins or talking about what you’re most excited about for the upcoming month. This is a great way to end the date in a good mood.

     

    Should you have money dates if you’re not married?

    Now you might be wondering whether a money date is still necessary if you’re not married. After all, if you don’t have a joint budget or shared debt payoff plan, then you might think you won’t have anything to talk about.

    Here’s my general rule of thumb — If you’re planning on spending your lives together, incorporate money dates into your month. Topics you can talk about if you’re not married include:

    • How you split expenses and whether this system still works. 
    • Progress you’ve each made on your individual financial goals and debt payoff plan
    • Progress you’ve made on shared financial goals
    • Ideas you might have for future financial goals

    Another really great way you can use these money days if you don’t share finances yet but plan to someday is to talk about what that might look like. Talk about how you’ll handle certain situations, like debt you each brought into the relationship.

    Talk about who will be responsible for managing the money or if you’ll always do it together. Consider making mock budgets to see what joint finances might look like for you.

     

    Final Thoughts

    Finances can be one of the most significant sources of conflict in any relationship. If you’re married or have been with your partner long enough to tackle financial topics, I’m sure you can relate.

    Regular money dates are one of the best ways to take the conflict out of talking about money — and you might even start enjoying it!