In a time when our attention is a most prized commodity and we are collectively consistently feeling burned out by the constant flood of information, it can feel easy to think there is one way to go about your finances or listen to one source of truth to streamline at least one area of our lives. I did this in my 20s and listened to those I trusted without fully understanding the context of their recommendations or taking the time to really educate myself.
Although there are tried and true concepts that apply to almost everyone, finances are not a one size fits all and the more you educate yourself and listen to varying points of view to understand what works for your specifically, the better you will set yourself to meet those goals.
Here are some tried and true concepts I believe are essential to help build a strong foundation:
High Yield Savings accounts: Opening a high yield savings account will allow your money to lose significantly less purchasing power as inflation increases than holding your cash in a regular savings account. These are federally insured accounts that are able to provide higher APY (annual percentage yield) than traditional accounts. Some banks that offer HYS accounts include Ally Bank, Marcus by Goldman Sachs, Betterment, and many others. Interest rates on these accounts are variable so unless they differ greatly, I suggest choosing one you feel comfortable with and not switching around because others offer better rates, unless the incentive is worth your time and effort in making that change.
Investing: It took me a long time to truly internalize the power of compound interest and why everyone tells you to invest early and often. It also took me a long time to overcome the fear of investing because it can feel so out of reach. With the stock market average yearly return at 9.74% in the last 20 years, it makes sense why this is one of the most common recommendations to building wealth. Start with an existing employer based retirement account and understanding what you're invested in, how much you're contributing each month, what the employer contribution is, etc. The financial institution your employer has chosen is there to answer your questions so use them as a resource, be curious and don't be afraid to get your questions answered even if you think they're basic – don't let shame or guilt keep you from getting informed and learning.
Income: Although I tried to manage my money as best as I could since I started working, it wasn’t until I significantly increased my salary that I felt much more comfortable diving into the world of personal finance and wealth building. When you are living paycheck to paycheck, it is extremely difficult to focus your time and effort in investing or anything other than your immediate needs. Instead of or if possible, in addition to investing, focusing your time and energy on increasing your income will go a long way. This can be through a second job or side hustle, increasing your skills through certifications and trainings, negotiating your salary, or looking for a higher paying position outside of or within your company. We are sold the idea that we need to find our “dream job” but no one I know dreams of labor, we dream of traveling, spending time with loved ones, and if your job isn’t helping you reach those goals, it’s time to reconsider. A third of our lives is spent working, make sure you're compensated accordingly.
Living below your means: Even if you’re making half a million dollars, if your overall annual spend is $600K, you are still in the red. Finding a way to track your budget and expenses that works for you is a crucial first step in getting control of your finances and planning toward the future. This can be through a budgeting app such as Copilot, Monarch, or tracking your monthly spend manually through credit card statements compared to your monthly income. If your output is greater than what's coming in, it's time to reconsider your habits and make changes but if you don't know what needs to change or where the bulk of your money is going, you'll continue down the same path with behaviors that are not serving you.
Automation: life gets busy and having to devote the additional mental load to manually paying off recurring expenses each month can make finances even more stressful. Going through your fixed expenses and figuring out ways to automate might be tedious in the moment, but future you will thank you for streamlining this aspect of your life and making things easier in the long run. This can include automatic withdrawals into your savings account, direct credit card payments a week before balance is due (look at your statements to know when that is), automating phone and utility bills, commute expense, rent and mortgage and any other recurring bills that can be automated. Although this will make your life easier in the long run, I would recommend still pulse checking these accounts regularly to ensure you're not being overcharged for anything and all is up to date.
There are many other aspects that form part of our financial ecosystem and journey but once you feel like you have a handle on the foundations, making decisions that make sense to your specific situation will become clearer.
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