Ask any financial expert and they’ll give you a whole slew of financial tips meant to improve your money habits and financial stability. While many of these pro tips are useful, that doesn’t necessarily mean they’re right for you and your unique financial situation.
Here’s a quick dive into some of the most common financial tips you can afford to skip or, at the very least, take with a grain of salt.
1. Save 3 to 6 months’ salary
The idea here is simple. Set aside a portion of every paycheck until you have between 3 and 6 months’ worth of salary in savings or an emergency fund. While this financial tip is great in theory, it isn’t very realistic if you’re starting from zero or struggling with credit card or loan debt.
For example, say your total monthly income is $2,700. Multiply this amount by 3 and you’ll get $8,100. Times it by 6 and you’ll have $16,200. Saving this kind of money, for most people, simply isn’t feasible when you’re just starting out.
Things become even trickier for people who spend most of what they make every month. For instance, if you spend $2,500 out of $2,700 a month, that leaves just $200 a month for savings. Given this, it would take you over three years to save three months of your monthly income.
A better option is this: Aim to save a smaller amount like $500. Once you’ve achieved this goal, work on saving another $500 for a total of $1,000. From there, start prioritizing how you use your money and make some long-term financial goals.
2. Don’t invest until you’re completely out of debt
Waiting until you’re entirely debt-free to start investing is tough for most people. According to Experian, the average American consumer owed $92,727 in debt in 2020. This figure covers all types of debt, including:
- Student loans: $38,792
- Mortgage loan: $208,185
- Credit card debt: $5,315
- Auto loans: $19,703
- Personal loans: $16,458
Rather than focusing solely on getting out of debt, consider your options.
On the one hand, paying off a credit card or loan will give you some spare cash each month. You could use this cash to pay off other types of debt more quickly. Getting rid of debt can also help improve your credit score, which could lead to better financing options and lower interest rates in the future.
On the other hand, if you start investing now, you can set yourself up for future financial success or retirement. The great thing about investing is that it doesn’t have to be difficult.
For example, some employers offer a 401(k) company match. This means they’ll contribute the same amount of money you do to your 401(k) account. If you can put at least the minimum in your account each year, the employer match is basically free money. Even better, if the employer deducts your contributions automatically, chances are you won’t miss it.
Instead of choosing just one option, you could instead do both. Start by building some savings or an emergency fund. Once you have some money set aside – $1,000, $2,000, etc. -, start investing in some conservative funds. The money you put in these funds will gain interest without being as accessible as a standard savings account or cash on hand. While you’re at it, consider consolidating your debt into one low-interest credit card or debt consolidation loan.
3. Aggressively pay down your debt
There are obvious advantages to paying off debt as quickly as possible. Not only will you become debt-free sooner, but you’ll also have more money at month’s end than before.
However, before you decide to go this route, establish an emergency fund or savings. That way, you’ll have some liquid assets (cash) available in case you need them, and you won’t have to resort to a payday loan if you run short. If you have several types of debt with astronomical interest rates or high monthly minimums, consider getting a debt consolidation loan or a credit-builder loan (Self offers a great option) to make them more manageable.
If you do decide to aggressively pay off your debt, keep in mind it won’t be easy. It’ll require a lot of dedication and persistence, and it could become exhausting over time. It can become extremely tempting to spend money, especially if you’re regularly denying yourself the small things like going out with friends or buying a new belt. Not only that, but if all your spare cash goes towards debt, that doesn’t leave much room for investing or saving.
4. Always pay your bills on time
As most people will agree, it’s important to pay your bills on time. After all, late payments may result in late fees. Plus, payment activity accounts for up to 35% of your credit score, and a missed payment that’s more than 30 days late can stay on your report for up to 7.5 years.
That said, missing a payment by a few days every now and again doesn’t have to be world-ending. In fact, some bills – like electric or internet – have some leeway. If you’re renting a place, you may also have a 3 or 5-day grace period in your leasing contract for when rent is due.
Although it’s never fun to have to pay a late fee, there are times when it is better to accept the fee and pay it when you can. This is especially true when the alternative is to take out an expensive payday loan that could lead to more financial problems down the road. A one-time $15 or $30 late fee that’s tacked on to your next utility bill is almost always more affordable than a payday loan with 366% APR.
If you know you’re going to be late on payments, speak with your creditors about adjusting the due date or giving you an extension. A little negotiation, especially during certain extenuating circumstances, can go a long way in making sure you aren’t late in the future.
With that, don’t push your limits. If you’ve already negotiated with a creditor or landlord and they’ve agreed to make an exception, do your best to honor it. If you’re consistently late on payments, not only will those late fees accumulate, but you may risk eviction or the disconnection of an essential service.
5. Follow the 50/20/30 budgeting rule
Coined by Senator Elizabeth Warren, the 50/20/30 rule is a popular method of budgeting. The idea is to set aside 50% of your income on needs, 20% on investments and savings, and 30% on wants. While this isn’t necessarily bad advice, it can be difficult to follow it if you’re already struggling financially.
Just like with the idea of saving 3 to 6 months’ worth of income, start small here. Establish a budget that suits your lifestyle and financial needs first. Tweak it as you go. If you find that the 50/20/30 budgeting rule doesn’t work for you, keep trying until you find something that does.
If you want to know more about the 50/30/20 budgeting rule, watch this video:
6. Always plan for the future
If you’re currently having financial troubles, the last thing you need is to worry about the future. Instead, take things one month at a time. Set some realistic, short-term goals like saving $50 or $100 a month and focus on the here and now.
While you’re at it, break down your total monthly income. This includes any income you have coming in each month, such as:
- Child support
- Passive income
- Side income from gigs
Next, create a simple budget that includes your bills and other monthly expenses. As you do this, try to separate your needs (ex. rent, car, food) from your wants (ex. eating out or monthly subscriptions to streaming services). Cut back on any nonessentials for some spare cash at month’s end. This may be tough at first, but the financial rewards should make it worth it.
If, even after creating and following a strict budget, you still don’t have enough money to cover everything, look for other ways to make or save more money. For instance, you could take on a side gig, get a roommate, or move somewhere less expensive.
In the meantime, start setting aside a small amount every month for savings or financial emergencies. Once you’ve reached a point where you can afford to invest a little, start putting some money into a 401(k), IRA, or another investment account.
7. Don’t move back home, or ask your family for help
It may seem surprising, but more and more people are moving back home or asking family members for financial help. In 2016, 15% of Millennials (people aged 25 to 35) lived at home with their parents. Just 5.1% of these people were unemployed, while the rest had some form of income.
Depending on where you live in relation to your parents or older relatives, as well as your relationship with them, moving back home may be an option. If they are amenable to this idea, consider moving home for a few months to a year as you work on building up some savings.
Even if you contribute some money towards rent, groceries, and utilities, chances are you’ll still be able to save much more than you could living on your own. If you have debt, this is also a good way to start cutting it down.
8. Become financially independent as soon as possible
On that note, don’t worry so much right now about becoming 100% financially independent. Financial independence is the dream for many people, and not without reason. However, it’s also quite expensive.
If possible, take advantage of opportunities to lower the cost of living. This may mean staying on your parents’ health insurance plan if they have one. It could also mean going to a local public college or university instead of a private or out-of-state one.
9. Gambling is worth the risk
No matter how good the odds may seem, the risk of gambling is never worth it when you’re already struggling to make ends meet. The majority of people fail to break even when they gamble, and even fewer actually make any money. The simple fact is, the chances of winning any money from things like lottery tickets, slot machines, or sports betting are slim.
Gambling doesn’t just refer to going to the casino or sports betting either. It also includes speculative investing, which is investing in things that could turn a profit as their market value changes. Speculative investing covers a wide range of categories, including house-flipping, the latest high-performing stocks, collectibles, and artwork.
Ultimately, if you don’t have a surplus of money each month after bills, saving, and investing, then don’t gamble. If you enjoy gambling for pleasure, stop doing it until you at least have an emergency fund and have cut down on some debt (assuming you have any).
Also, make sure you’re achieving other short-term or long-term financial goals and that the gambling fits into your budget. That way, you won’t spend more money than you can afford to lose.
10. Don’t get a new credit card
It’s never a good idea to open multiple new accounts at once or get a new credit card for the sake of it. However, that doesn’t mean it’s always a bad idea to get a new credit card.
With a 0% balance transfer credit card, you can transfer existing credit card debt from one account to another account. This is particularly useful if your existing account comes with a high APR. 0% balance transfer credit cards offer the following:
- 0% transfer fee
- No annual fee
- Long interest-free period
There aren’t many 0% balance transfer cards out there these days, but there are a few options, such as the card offered by Navy Federal Credit Union. Keep in mind that most of these credit cards are reserved for people with excellent credit (720+ FICO Score). In the case of credit unions, you may also have to be a member to qualify.
If you do get a 0% balance transfer credit card, focus on paying off the balance on the new account before it can start to accrue interest. Once the balance reaches zero, put away the card and refrain from using it unless there’s an emergency. Even then, only use it if you can pay off the balance each month to avoid interest.
11. Buy in bulk and save
Local grocery stores often have deals on bulk items. However, while some of these deals may result in long-term savings, there are a few reasons why buying in bulk isn’t always the best idea.
For one thing, something that seems like a deal may not actually result in much savings, if it saves you anything at all. Places like Sam’s Club and Costco offer many bulk items, but the price is often comparable to other local stores. Of course, if you shop regularly at these types of places, especially if you have a family, the membership deals may make it worthwhile. Just do the math before jumping on the latest deal.
Another problem with buying in bulk is that many of the items end up spoiling before you can use them. Things like chicken, fruit, vegetables, and bread have a relatively short shelf life. If you do end up buying in bulk, cook what you can and store the leftovers or individual ingredients in the freezer so they last longer. Or buy goods that don’t easily expire, like cleaning or paper products. If you decide to buy in bulk, be realistic about how much you’re actually saving versus how much you’re using.
As an alternative to buying in bulk, look for coupons online or in the Sunday newspaper. Many grocery stores and other local stores have sales that are tied to manufacturer coupons, so see if you can stack coupon deals for maximum savings.
12. Use credit cards to finance your daily expenses
Several financial experts recommend paying all of your expenses with credit cards so that you can rack up cash back bonuses, points or miles. Don’t worry about any of this until you have your budgeting under control. Credit cards are convenient, but the purchases you make on them add up fast, especially when you consider the interest rate. That’s why you should only be using your credit card in one of two ways:
- For emergencies. Credit cards are great for emergencies. For instance, if your car runs out of gas and you don’t have any other form of cash or debit on you, a credit card could be a lifesaver. Also, some car rental places and hotels require a credit card for reservation purposes.
- Based on your budget. If you’re good at sticking to your budget, you may be able to use a credit card to finance day-to-day purchases. However, you should only do this if you have no problem paying off the total balance each month. Many credit cards also offer rewards like cashback or travel points that accrue based on usage.
According to a study by Dun & Bradstreet, people spend between 12% and 18% more money when using a credit card to fund their daily purchases instead of cash. This is largely due to the fact that buying things you want provides a boost of serotonin. This makes you feel happier in the moment and more likely to buy more things later.
There’s also a popular phenomenon known as “payment coupling.” Payment coupling is the association between purchasing something and the actual money used in a transaction. When using a credit card, it’s much easier to disassociate yourself from how much money you’re spending than it is with cash. That’s because you don’t immediately experience the downside or cost of using the card. Instead of realizing the logical repercussions of spending money, you only feel the happiness or benefits of getting whatever it is you wanted.
13. Don’t buy a car unless you can pay it off in full immediately
Although it may be tempting to wait until you can afford to pay off a vehicle in full before you buy it, there are some problems with this advice.
First, although an auto loan is a form of debt, it’s not the same as credit card debt or many other loan products. This is because, for the majority of the population, a vehicle is an essential form of transportation that allows them to get to and from their job and earn an income.
Second, most people can’t afford to put tens of thousands of dollars towards a vehicle. If an auto loan isn’t an option, the alternative is to purchase a cheaper car instead. Say, for example, you put down $1,500 in cash for a run-down vehicle that ends up costing another $3,000 in repairs. If that same vehicle also breaks down frequently and causes you to miss work, it could actually become more of a financial burden than a loan would be.
Plus, even if you do have enough money to pay for a decent vehicle outright, it may be better to save or invest it instead of spending it all at once.
Instead of trying to save enough money to purchase the car in full, figure out how much you can afford to spend on the auto payment, gas, insurance, and repairs or maintenance. Then, set aside 15% to 20% for a down payment to lower your monthly costs.
Once you know how much you can afford, shop around for the best rates. According to an Experian study in 2021, the average interest rate on an auto loan for a new vehicle is around 4.09%. For used vehicles, the average interest rate on auto loans is 8.66%.
However, it is possible to get a lower interest rate with a higher down payment and excellent credit. If you don’t qualify for an auto loan on your own, ask a family member with good or excellent credit to co-sign for you. As long as the monthly payment fits into your budget, an auto loan may just be the best choice.
14. Always listen to the “experts”
Regardless of how knowledgeable they seem, the “experts” aren’t always right. The advice or financial tips they offer may work for some people or some of the time, but not always. After all, even the “experts” don’t know your specific situation, financial habits, goals, or needs. Don’t just listen to them because they seem reputable.
For example, financial guru Dave Ramsey suggests never using credit cards for any reason, period. However, if you’re responsible with your money and can make on-time payments, a credit card is a good way to build credit, and a good way to float you until your next payday if you’re hit with a sudden crisis.
Another financial expert, David Bach, proposes the “latte factor” as a way to become wealthy. Bach’s idea is to invest the money you would have otherwise spent on coffee each month in the stock market to become rich. However, the stock market doesn’t always have positive returns, especially if you don’t know what to invest in or choose underperforming stocks.
Always take any financial advice with a grain of salt before applying it to your real-life situation.
The bottom line
Ultimately, there’s no one right or wrong way to handle your own finances. There may be some trial and error as you find out what works for you, but that’s okay. Set your own pace as you work towards your short-term and long-term financial goals.
With some practice, persistence, and planning, you’ll be able to start paying down debt, saving more money, and even investing in the future.