I’m a personal finance nerd.
I love the subject of managing personal finances. I write about it. I obsess about it. I even manage personal finance and real estate investing groups on Facebook.
I especially love hearing fresh perspectives.
When I polled a personal finance group on Facebook, many of the same themes kept popping up again. And again. And again.
Here are the recurring tips and tricks I’ve learned from several successful personal finance enthusiasts – not experts or writers, but laypeople who have mastered their money.
To protect their identities, I’ve removed their last names, but below is expert advice direct from your peers that can help you better manage your finances.
1. Automate Your Savings
Here’s the thing about “doing the right thing”: It relies on discipline… which is often unreliable.
You might be really good with your money this month by conserving cash and not spending a lot. Maybe you’ll even repeat it next month. But eventually, your resolve will crack.
It’s like dieting: If you leave a jar full of soft, chocolatey cookies on the counter (yum), sooner or later you’ll succumb and eat one … or 10.
So, what do you do? Simple: You set up automatic savings, to move your money out of reach before you even get the chance to gobble it up and spend it.
Megan D. says she transfers an automatic $80 per paycheck into my savings with each pay period.
“I split my direct deposit,” she said, “so it goes right in [my account]. Once I see my savings start to build, it encourages me to find other ways to save and build on the balance. I also set up an automatic contribution on Smartypig to save towards the DSLR camera I want. I have my savings with different banks than my checking, so I have to think before I withdraw the money.”
Megan added she also regularly analyzes how she can routinely contribute a bit of money to her savings account.
“Another thing that seems to work well for me is looking at all expenses that need to come out of checking in a pay period, leaving that money in, and putting everything else into savings,” she noted. “I trick myself into thinking I’m broke, and then I don’t spend as much on things I don’t need.”
Think of it as the monetary equivalent of throwing out the cookies and stocking the jar with fruit and vegetables.
2. Prioritize Unsecured Debts
There’s a line of thought that says, “There’s no such thing as good debt.”
That’s completely false, though, and I can prove it mathematically. Having said that, you can make a case that there’s no such thing as good unsecured debt — or rather, that keeping it long term is bad news for your finances.
Student loans may be unavoidable for you, but that doesn’t mean you should keep them forever.
Unsecured debt is far more expensive than debts secured by real estate or vehicles. While it may make sense to borrow money at 4% for your home and invest your cash at 10% in a mutual fund or rental property, rather than using your cash to buy a home, nothing good comes from credit card debt at 24%.
Brad B. put it succinctly: “We paid off our student loans ASAP so we could funnel all that cash into savings.”
Wham, bam, thank you, ma’am.
3. Get Aggressive with Spending Cuts
When people first start budgeting, they tend toward timidity. They look to cut a little here, a little there.
As they say, that ain’t gonna “cut” it.
Stop thinking small. Try to reprogram your assumptions by forcing yourself to think big. Here’s a what-if to contemplate:
- What if you lost your job tomorrow, and got a new one that paid half as much? What would it take for you to live on half your income?
You’d probably start with the easy stuff, like getting rid of cable TV and cutting out happy hours and work lunches. It’s a nice start.
Doug A. started slow, but still saw a difference: “We switched to only eating out once a week. It not only saves us money on food, but has saved money on gas, and then when we are not out by stores eating we have been shopping much less. Kind of a trickle-down effect.”
But how do you really put a deep dent in your spending? By cutting your top-three expenses.
4. Slash Spending on Housing, Transportation, and Food to the Bare Minimum
The majority of your spending probably comes from housing, transportation, and food. In fact, the average American spends 70% of their income on those three expenses.
Do you need to spend all that money? What would happen if you had no housing cost? If that sounds like a fairy tale, consider a few options for house hacking to live for free, even in a single-family home.
Likewise, how could you get creative to shave your spending on transportation and food to the bare minimum?
Karrie Sue P. got aggressive: “We sold our house, paid off all our debt, and moved into a friend’s basement. Live like no one else, so that one day you can live like no one else.”
Too extreme for you? Rachel E. said she simply “got a roommate and started eating out less.”
Brent K. “got rid of a financed car, which eliminated all of my debt. Now, seeing 30% of my paycheck going into my 401(k) doesn’t sting so bad.”
What would it take to go from spending 70% of your income on those three expenses to only spending 20% of your income on them?
If you can answer that question, you will be living on half your income — and seeing your bank accounts grow steadily.
5. Avoid Lifestyle Inflation
What happened the last time you got a big pay raise?
You probably moved to a nicer place, or bought a nicer car, or started eating out at nicer restaurants.
“Nicer” might be nice, it’s far from necessary.
This is the financial treadmill that most Americans keep running on: As soon as more money starts flowing in, people just turn up the spigot on their spending. If you make $35,000, you spend $35,000. You say to yourself, “Man if only I were making $70,000, I’d be able to put so much money away for retirement and savings!”
Then, a few years later, you find yourself making $70,000, yet somehow your expenses have grown to $70,000, too.
Get off the financial treadmill. Set that 50% savings rate, then freeze your budget. No more expenses.
This was the key to Matt M.’s financial success: “I increased my income but maintained a very low cost of living.”
6. Capitalize on Tax-Advantaged Accounts
You know what else eats into your income? Taxes.
Most middle-class people shrug their shoulders and think paying taxes is just a fact of life. But at 20-50% of your income, taxes are a losing proposition, if you’re trying to build long-term wealth.
Keep more of your money by funneling it into tax-advantaged retirement accounts. If your employer offers it, 401(k) accounts are great because of their high contribution limits ($18,500 for adults under 49, $24,500 for adults 50 and over).
But IRA accounts are independent of your employer – anyone can open one with a 5-minute phone call to a broker. The contribution limits are lower, beware $5,500 for adults 49 and under, $6,500 for adults over 50.
Liz L. said she’s built her wealth by “setting our paychecks to max out our 401(k) and 457(b) tax-deferred savings.”
Uncle Sam is greedy. Smack his paws away from your money.
7. Get Creative with Your Spending
Unless you’re living off the land as a hermit, you have to spend some money … but that doesn’t mean you have to do it as everyone else does.
Do you buy a $5,000 wedding dress that you will never wear again? Or do you rent the same dress for $500?
Do you stay at a $250-per-night hotel when you travel? Or do you find an Airbnb in the same area for $80 a night?
There’s almost always a cheaper way to create the same result. It just requires some creativity, starting with questioning your assumptions.
Jay Michael R. says he “started credit card hacking to get signup rewards so I can travel for free.”
8. Earn More Money
Saving, budgeting, getting creative with spending – that’s all well and good. In fact, you need to master it, if you’re ever going to have any cash to invest.
But, in some ways, it’s all about playing defense. What about the offensive side of the ball?
Find ways to earn more money. That could mean getting a raise at your current job. Or it could mean finding a new job that pays better within your current field or getting training and education to qualify for a better job. It could even mean taking on freelance side jobs in your field (or another area of interest where you can leverage your talents)
Matt C. says “I learned how to program SQL code on Code Academy and found a job as a data analyst. Then I combined that with finance and I’ve doubled my income in three years.”
But it doesn’t stop there. Many people start side hustles to earn extra cash. In fact, it could even be a hobby that happens to pay you, rather than cost money!
(Real estate investing, anyone?)
9. Track Your Finances
What did you spend on food last month? On alcohol? Entertainment? Clothes?
Most people have only the vaguest sense of where their money goes each month. Sure, they know their rent or mortgage payment, and their car payment — but their discretionary spending is usually a blur.
Start tracking every penny you spend. You’ll find some surprises – I guarantee it.
It doesn’t stop with tracking your spending, however. If spending is the “minus” column, net worth is the “plus” column. Monitor your net worth in real-time, so you can watch it grow every month.
It will provide some immediacy and tangibility to your money and building your wealth.
Rebecca L. explains how her perspective shifted: “What worked for me was actually tracking net worth each month to show progress, and putting that money into investments rather than just leaving it in my savings account. We always lived within our means by quite a long shot, but now I ‘feel’ like I have less to spend because it’s not in my savings account.
“It makes me more conscientious about how I spend my money on the day-to-day, knowing that I have another $450 ‘bill’ to my IRA each month for both me and my husband.”
As they say in business, “That which gets measured gets done.”
Putting It All Together
Feeling a bit overwhelmed with all this personal finance advice? Don’t sweat it.
Pick one or two items on this list and start there. Spend the next month or two getting comfortable with it, then come back and add another layer to your financial cake.
Whether you make $30,000 or $300,000, if you spend everything you earn, you’ll never build true wealth. Start slashing away at your spending, especially at the largest expenses like housing, transportation, and food. There’s always room to cut more!
Start moving money toward your investment funds automatically. If you’re new to investing, start with low-cost index funds. As you get more comfortable and build a cash cushion, start thinking about diversifying into real estate – you have an entire free library here at REtipster, dedicated to helping you earn higher returns with more control and predictability through real estate investing!