5 personal finance tips you were never taught – but need to know
We asked half a dozen personal finance experts money-saving and wealth-creating tips that most people are never taught.
Take a day to think about large purchases to avoid impulse buys
“Delaying your purchases for a day gives you time to think about whether or not you really need the items, and it curbs regrettable impulse buys,” advises Marc Diana, CEO of MoneyTips. “Sale items may be an exception to this rule, but even then, question how badly you need the item compared to saving or investing the money you would use to purchase it. When times are tough, and you’re cutting expenses, would you rather have a rarely worn $300 pair of shoes or $300 cash?”
Budgets are freeing, not constricting
Says financial educator Tiffany Aliche, “Keeping a budget allows you to say yes to your goals in a strategic way. If you have a budget, you can save for the holiday, house or car you want to get. You can look at it as ‘No dining out,’ but I see it as ‘Yes to a trip to Paris.’ A budget is not a NO plan, but a YES plan with actual steps towards achieving your goals.”
Budget with the 50/20/30 rule
Lynn Toomey, co-founder of Your Retirement Advisor, suggests following this easy budgeting rule:
Use 50 per cent of your income for non-discretionary necessities like food, rent/house payment, utilities, and transportation.
Put aside 20 per cent of your income for an emergency fund (three to six months’ salary is a good target), retirement, savings, and to pay off any debts.
Use 30 per cent of your income for discretionary (non-essential) spending such as entertainment, holidays and gifts.
Penny-pinching is not the road to wealth
Spending less doesn’t mean you’ll have more. Saving is a good way to stabilise your finances, but you still need to invest. “Pretend there are two islands,” advises Aliche, who is also known as The Budgetnista: “Financially Stuck Island and Wealthy Island.” She says that your savings can be like a car – you can’t drive off Financially Stuck Island without a bridge. Investing is the bridge to financial success. “To get from one island to another, you need to get in your savings car and drive it over your investment bridge.”
Financial advisors aren’t only for wealthy people
Millions of people have trillions invested in stocks, bonds, mutual funds and other stock exchange investments, but just because you can easily make trades yourself doesn’t mean you should. “Why not do what you do best to earn money and let a trained professional invest it for you?” asks Brian Saranovitz, president of Your Retirement Advisor. “A recent Vanguard Investments study indicated that integrating proper retirement strategies can add as much as 3 per cent efficient return to a retirement portfolio.”
Adds Aliche, “You need to purposefully seek out knowledge. If you break a leg, you know that you need to go to a doctor. With personal finance, people have got the notion that they could just fix it themselves. When it comes to investing, don’t be afraid to seek professional help.”
Written by Jeff Hoyt. This article first appeared in Reader’s Digest. For more of what you love from the world’s best-loved magazine, here’s our best subscription offer.
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