How I manage my money, based on many dozens of books, websites, and videos from financial experts:
- Create a balanced household budget, if possible, based on the costs and income from the past 12 months. If income is less than expenses, cut as many expenses as possible. Review the budget once a year.
- Get a checking account without any monthly fees. I recommend credit unions over big banks for better rates and customer service and a track record of not almost destroying the global economy. Have all income and and expenses come out of this fund, to make it easier to track the balance. Instead of buying checks from the bank, I’ve used Checks.com and it’s cheaper and worked well.
- Save $1,000 for a starter emergency fund, either in your checking account or separately.
- Get a credit card with cash back and no fees when the balance is paid off, and set all of your bills to autopay on it (at least those that do not charge extra for this). I use Capital One Quicksilver. Have the monthly credit card bills autopay from the main checking account. If it’s too difficult to control spending, then use cash or debit cards for everything except the autopay bills.
- Pay down any debts. I focused on paying down student loans before general debt and higher interest rates before lower ones first. If it’s hard to stay optimistic about the process, then focusing on the debts with the smallest balances first for a feeling of progress is also an option, although it will take longer overall.
- If matching funds for good retirement programs or other expenses are available at work, then max those out. Depending on your income, debts, and interest rates, it may make sense to do some of this before the previous step.
- Save 6 months of expenses in the emergency fund.
- Invest in one or more of the following:
- Series I savings bonds: A savings bond is an investment in the Government, offered by the United States Treasury, which pays you interest in exchange for borrowing your money. The amount of interest that an I savings bond pays is calculated to match the increase in a collection of items that is meant to reflect what a typical person might buy, including food, utilities, and rent. So if everything gets expensive (also known as inflation), your savings bond earns more interest. These are issued by the and great for times of high inflation, with no risk and no state taxes.
- Roth IRAs: available through banks and credit unions, as well as brokerages like Schwab, TD Ameritrade, and others. You can put up to $6,000 per year into one of these accounts. The big advantage is never having to pay taxes on the earnings. Traditional IRAs are also an option when you would like to reduce your taxable income now and pay taxes later. If your income dips, however, you can convert them to Roths. Within an IRA of either kind, you can hold stocks, bonds, CDs, index and mutual funds, and other investments; of these, only the CDs and cash options are without significant risk. With a self-directed IRA, other options like real estate and precious metals are also available.
- Certificates of Deposit (CD’s): A low risk option, at one time ING offered 6% rates, but not anymore.
- Items that can pay for themselves :
- Save Energy and Water: Switching out your shower heads, lightbulbs, pressure cookers, insulating curtains, and other items can pay for themselves in time. Check with your utility companies, many will offer free items, checkups, rebates, or other assistance to help you use less.
- Food and Cooking: If you can items that allow you to buy food cheaper or cook things instead of buying them (freezers or costco memberships for bulk food purchases, a good wafflemaker and waffle mix instead of frozen waffles, etc.)
- Solar panels : each state has different rules, but depending on where you are they’ll give you money to save money; be sure to check that the company allows you to keep the renewable energy generation credits, which can be sold on an open market. While the cost of solar panels has gone down, and may continue to, some of the materials in the current types of solar panels may be more expensive in the future.
- Entertainment items : For example, a good video game can provide hundreds of hours of fun cheaper than going to concerts or movies. Getting a Roku or other streaming device and cutting your cable bill can save you hundreds per year.
- Security: video camera systems to avoiding breakins, dash cams, etc. can pay for themselves. Check with your insurance company, some of these items may reduce your monthly rates too.
- Real estate you expect to maintain or increase in value, especially if you can live in it and get a good mortgage. Avoid mortgages with changing interest rates, and don’t buy more than your budget will allow.
- College Funds , 529 plans
- Increased earning potential (graduate degrees, equipment for a small business, etc.)