There is no way to get rich overnight (unless you win the lottery). However, there are several ways to reach financial success over the span of a lifetime. In this post, I’ve compiled a list of the biggest practical personal finance tips to help you build wealth over your lifetime to reach financial security.
1. Have a Budget
A lot of people think a budget is there to stop you from spending. Maybe they imagine that living by the budget means getting on an episode of Extreme Cheapskates. Or that maybe they will turn into Mr. Krabs.
While those thoughts might have a hint of truth, they miss the bigger picture. You should not see your budget as a limit on your personal finances. Instead, you should see this and the following personal finance tips as the foundation for financial freedom.
Your budget empowers you to have total control of your money and to achieve your financial goals.
There’s really nothing to be afraid of here. Your budget just shows you the truth of your financial circumstances. Having this information allows you to make informed decisions to reach your financial goals.
If I’m going to be honest, my budget actually feels kind of liberating. When I spend money on myself, I don’t have to feel guilty about it because I know that it’s permitted in my budget. I don’t have to second guess my choices every time I spend money on something. It’s all accounted for in my budget.
If you want to get started on budgeting, check out my free budgeting spreadsheet here. Dave Ramsey also has a great series of posts for learning about budgeting and other personal finance tips like this.
2. Live Below Your Means. Way Below
In my chemical engineering days, we had to learn the ways of the mass balance. Mass is never created from nothing and is never destroyed into nothing. If more mass comes out of your system than mass that comes in, you are losing mass overall. If more mass comes in to your system than mass that comes out, you are gaining mass overall.
Now read what I said above, but replace “mass” with “cash”. Do you get where I’m going with this?
The key to saving is spending less than you make.
If you are spending like you make $100,000 a year, but only make $60,000 a year, how do you think that’s going to turn out?
But what if you make $100,000 a year, but spend like you make $60,000 a year? That’s at least $40,000 a year in savings, perhaps enough to buy a house or payoff student loans in a few years.
If you compare the differences between the two situations, you’ll see that the more you live below your means, the more you’ll save.
Me personally, I can technically “afford” to rent a 1 bed room studio. But instead, I’m applying this (among other personal finance tips) by renting a room on craigslist for about two-thirds of the cost. Even though I’m a working professional now, I’m living like a broke college student (at least for now). This gets me closer to my goal of buying a house in much less time than if I rented an apartment.
3. Have a 3 Month Emergency Fund
Things never go according to plan. That’s just the way life works. No matter how much you plan ahead, there will always be something that comes up.
You might:
- Lose your job with no pay
- Get into a car accident
- Have a roommate who can’t pay rent this month
- Have to pay for sudden repairs on your house, car, or computer
- Get the coronavirus
Ideally, your emergency fund should cover you in case something like that happens. If you can, you should have enough saved up to pay for about 3 months of living expenses in your emergency fund. If you are really struggling financially, you can try aiming for a meager $1,000 savings to start out.
Dave Ramsey also has a really good post on emergency funds and similar personal finance tips.
4. Get a High Interest Savings Account
Do you keep your savings in a typical savings account with your bank? If so, you need to stop that right now and start moving your money elsewhere. You are literally losing out on free money. This personal finance tip will show you how to literally get free money for doing nothing.
The average savings account only gives you a 0.09% APY (Annual Percentage Yield). Typical bank savings accounts do much worse than that. For example, a savings account with Wells Fargo only gets you a 0.01% APY, basically a few cents per month.
Move your money into an online savings account with a high APY. As of March 2020, some of them give you up to a 1.80% APY. If you have a few thousand saved up, that’s easily $5-$10 per month for literally doing nothing.
Nerdwallet has a really in-depth review of the many online savings accounts out there and any potential bonuses. Some accounts will even give you cash welcome bonuses for depositing a certain amount. Nerdwallet also lists those out for you to compare.
One thing to note: interest rates change with the Federal Reserve rates. Just a few days ago as of writing this, the fed cut rates by 1% which dropped many saving accounts’ APY. However, even if the rates change, it is still a good idea to switch over if you haven’t already. Anything is better than 0%.
5. Save with Cash Back Apps
Do you remember back when couponing used to be a big thing? I remember back in the early 2000s when people got their coupons from their magazine subscriptions and newspapers. We would have to physically cut them out with a pair of scissors and bring them to the store with us to cash them out.
When everything started going digital, I started seeing less of that. But that doesn’t mean that coupons and other money saving promotions died off. Discounts and cash back offers have also gone digital. You can still cash in on these savings through cash back apps available online today.
If you are going to buy something anyways, why not slap on a free discount? Just resist the temptation to go on a wild shopping spree.
Here are two apps that I recommend and use personally:
Rakuten/Ebates (free $10 bonus through my link)
Rakuten (formerly known as Ebates) is a cashback app that I use for online shopping. They have a nifty chrome extension that will automatically let you know when there are cashback opportunities on the page.
I signed up only a couple months ago and I’ve already earned about $25 in cashback. $10 from someone’s bonus offer, $6 for tax software I needed, and $10 for a flight I was planning.
Click here to signup for a free account and get $10 for free if you spend $25 in your first year. You will easily spend 4x or more that amount if you plan on flying anywhere this year or plan on buying birthday/holiday gifts. You can literally sign up and just forget about it. Rakuten will notify you for free discounts and cashback right before you’re about to buy something.
Ibotta
Ibotta is a cashback app that I mainly use for buying groceries. When I’m in the grocery store, I just go through my shopping list while searching if Ibotta has any offers. If they do, I check it off in the app and upload a picture of my receipt later.
Click here to signup for free with my referral code “bsfpxby” at registration to join my team. If your team earns a certain amount, you unlock bonus cashback if you also contribute your fair share (about 15 offers per month).
6. Use High Cash Back Credit Cards
Along the same lines as #5, you should use credit cards that maximize cash back/rewards on your spending. You will be spending money anyways, so might as well make the most of your spending. Shop around for the credit cards with the best intro offers and highest cash back rates for you.
I’m personally using the Discover It credit card. If you apply for a card through my link and buy something using your card, you will get $50. Click here to learn more about this signup bonus. The referral offer only works for 10 people per year. So make sure to grab the $50 offer before it’s too late (or ask your friends if anyone has a Discover card). [4/20/20 Update: offer is still good. No one’s redeemed any since this post went up on 3/22/20. If you do it now, it should still be good.]
They offer 5% cashback for purchases in certain categories that change every quarter and 1% cashback on others. They also have a special first year bonus where they will match all cash back you make in your first year.
NerdWallet goes really in depth into credit card comparisons. So that would be a good place to start doing your research if you’re looking for something else.
7. Avoid Loans, Payment Plans, and Debt
This is just simple 8th grade math. If you push your payments off for later, you always have to pay more in interest. Here’s a little picture to show you what’s going on:
The red up there shows you the extra cost you end up paying on top of what you already owed in the first place. That extra money goes out of your pocket into someone else’s pocket. If you want to build up your personal finances, you want to keep your money in your pocket as much as possible.
Don’t let anyone trick you into thinking small payments over a long period of time equals affordable. Most likely it isn’t. If you keep on doing this, eventually you will find yourself swamped with payment plan fees and loan payments living paycheck to paycheck.
8. Invest Early
Once you get out of debt and have an emergency fund set up, it’s time to start thinking about investing. Like #7, this personal finance tip comes down to simple math. You invest a certain amount now and get that amount plus interest later.
My personal advice is to take the long term approach to investing. Don’t try to “time the market” and get into day trading or swing trading (unless you want to devote a lot of time and money into something with uncertain returns). The earlier you start investing, the greater the returns will be in the future because time is on your side.
Take this simplified example: If you started with a penny and doubled it everyday for 30 days, how much money would you end up with? $10,737,418.24
Now what if you jumped on the money train late and could only double your money for 26 days? You would only end up with $671,088.64, less than a tenth of what you would have gotten if you started on time. The growth rate is pretty extreme in this example, but the math behind how that works is the same (0.01*2^n, where n = days if you’re curious). An earlier start makes a big difference for your total gains.
I recommend looking into a Roth IRA for your retirement account and investing in an index fund. A Roth IRA lets you contribute to your retirement account after taxes so that you can let that money grow tax free and take it out at retirement tax free. But you won’t be able to withdraw anything until you turn 60 without paying a penalty.
9. Take Advantage of a Health Savings Account (HSA)
An HSA is a type of savings account that lets you set money aside before taxes (if through your employer) or tax-deductible (if you opened your own) to pay for medical expenses. You only qualify to make contributions if you have a high deductible health plan.
It’s a nice way to reduce your taxable income since you will probably have to pay for medical expenses in the future anyways. Best of all, you get to take money out for medical expenses tax free. If some of your cash is going to taxes anyways, why not put it to work for you instead?
Conclusion
Here are the wealth building personal finance tips we covered:
- Have a Budget
- Live Below Your Means
- Have a 3 Month Emergency Fund
- Get a High Interest Savings Account
- Save with Cash Back Apps
- Use High Cash Back Credit Cards
- Avoid Loans, Payment Plans, and Debt
- Invest Early
- Take Advantage of a Health Savings Account (HSA)
If you follow these tips, you are virtually guaranteed to build wealth and get control of your personal finances. It all boils down to controlling spending and investing wisely.
Looking to start applying some of these personal finance tips? Here are 4 quick, easy action-items for you to do right now:
- Grab my free budgeting sheet and start tracking your spending
- Setup a Rakuten and Ibotta account to start getting easy cash back
- Look around for a high APY savings account and transfer your savings
- Apply for a Discover card and get $50 free (using my link or a friend’s referral). Only 10 offers available per year.
Fun facts: used to lion dance in college, can speak 3 languages (sort of), can lift 400 lbs, once ate a chicken head.
- Where Does The Money Go When You Buy A Stock? - November 22, 2020
- Why Is It Important To Save Money At A Young Age? - November 15, 2020
- What To Do If Someone Is Not Giving Your Money Back - November 8, 2020
wow. so have you got rich yet?
maybe