There’s no shortage of great personal finance advice out there. The problem is figuring out whether or not it applies to you.
“Personal finance is personal before it’s financial,” Talaat McNeely told me during an interview earlier this year. McNeely is the co-founder of the site His de ella and Her Money, which he runs with his wife, Tai. I’ve found this idea to be a helpful way to think about your finances and life in general.
There is no single tip or money hack that will instantly change your life. But some principles and concepts can put you on the path to achieving your goals. You’ll just need to figure out a way to apply them to your unique situation.
Here are the most impactful lessons I’ve learned during my time as a personal finance reporter, and how I’ve applied them to my life. These tools and helped my wife and me set aside over $20,000 to pay off student loans (once interest resumes next year), build our emergency fund, and feel less stressed about our financial future.
A good budget should manage not only your expenses but also your emotional relationship with money.
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5 Things I Learned as a Personal Finance Reporter
Since launching NextAdvisor in the middle of the pandemic, our biggest priority has been sharing actionable advice readers can use right away in their daily lives. In the course of fulfilling this mission, we’ve learned quite a lot about ourselves.
Here are four personal finance concepts my wife and I have incorporated into our everyday approach to finances, plus one strategy we plan to use when we are ready to buy a house.
1. Budgeting Is About More Than Just Managing Money
For years my budget was a homemade spreadsheet I updated sporadically in hopes of becoming a young Warren Buffet. It rarely worked as well as I wanted. In theory, my budget should have turned me into the ultimate saver. But what frequently happened was: I’d update it once a month only to find out I’d overspent on eating out. And it wasn’t helping me feel any less stressed about money.
One of the first stories I wrote for NextAdvisor was about creating a budget, and that is where I discovered zero-based budgeting (ZBB). Once my wife and I started using the zero-based budgeting method, we didn’t just start saving more but also began to feel less worried about money. In my experience, a good budget should manage not only your expenses but also your emotional relationship with money.
With ZBB, every dollar that comes in is given a purpose. We assign funds to pay for rent, cellphone, and other expenses. But we also assign money for more than just our current bills. This strategy helped us pay off student loans sooner than we expected.
ZBB also helped us build an emergency fund for the first time in my life. When the cat needed a $2,000 emergency surgery this past summer, we already had that money set aside. If we hadn’t had an emergency fund, this surprise cost would have been a setback for other goals. Since this money was already set aside, it didn’t negatively affect our other financial obligations.
We’ve been using the zero-based budgeting app You Need a Budget (YNAB) for almost a year and a half, and we absolutely love it. This app has effectively turned our credit cards into debit cards, which is important because I’m a full-blown travel credit card junkie. When I enter a credit card purchase into the YNAB app, the funds are immediately assigned to pay off that card. So even though I won’t actually pay the credit card bill for up to 30 days, the budget tells me that money is no longer available to spend.
How to Find a Budgeting Strategy That Works for You
If you want to try zero-based budgeting for yourself, I think YNAB is a great place to start. It’s important to note that it’s not free. But there are plenty of free or cheap ZBB templates available. And ZBB isn’t the only budgeting method that works. As you explore different approaches to budgeting, zero in on why you want a budget in the first place. A budget can help reduce financial stress, and get you closer to your goals without turning you into Ebenezer Scrooge.
2. Prioritize Income Over Expenses
There is a limited number of Starbucks lattes you can cut from your budget—but an unlimited number of ways to make money.
I’ve talked with people who’ve paid off their mortgage in under six years and conquered six-figure sums of debt. One common thread from these success stories is they find ways to make more money. They start side hustles, businesses, or find better paying jobs. Having a budget that works for you is still the first step. But if you don’t net enough income after expenses, then saving for anything else will be a struggle.
My wife and I are expecting our first child in 2022, and for us, it’s as important as ever to increase our household income. My wife is considering a move from freelance to full-time work, which would provide a more stable income. From there, we might explore other freelance or side hustle opportunities.
How to Increase Your Income
Starting a side hustle might not be as challenging as you think. Chances are you already have interests and talents you could use or develop to increase your income. One great bit of advice Marc Russell shared with me was to repurpose the skills from your current job into a side hustle. Russell is the creator of the personal finance Instagram account Betterwallet. “As long as there’s no conflict of interest with your current job, you can go off and create your own thing on the side and get paid for it,” he said in a previous NextAdvisor story.
3. Negotiating Can Be As Simple As Asking
The thought of negotiating has always terrified me. My idea of a good negotiator has always been a former Navy SEAL or pro athlete, someone who’s in control, confident, and used to winning. In reality, negotiating is often as simple as asking for what you want. Crafting a good offer sometimes includes offering something of value in return.
I’ve never asked for much of anything, much less a discount on my housing costs. Recently, I was looking to move into a new apartment on a short-term 3-month lease. I emailed my current property managers to ask about two units downstairs I knew were vacant. I asked if either unit would be available for a short-term lease and I gave them valuable information, reminding them the one apartment had been vacant for over a year. Then I offered to pay all three months upfront if they would reduce the rent.
Now I’m paying over $150 less a month and my landlord has $4,000 more than before I asked for what I wanted.
How to Trade More Frequently
Any negotiation is better than no negotiation. Find an approach that could help you ease into it and be more comfortable. Try making an indirect request and see if that’s easier for you. Instead of coming out and saying you want a pay raise, ask your manager something along the lines of, “what have people in my position done in the past to help increase their pay?” At the very least, it gets the conversation started. You’ll never get something if you don’t ask for it in the first place.
4. Be Patient and Consistent. Change Takes Time
Changing the trajectory of your finances takes time.
That can be disheartening to read. Everywhere you look it’s one headline after another highlighting the youngest millionaire or someone who went from insurmountable debt to financial freedom in less time than it took to read their bestselling book.
Life is a marathon, but we only see the last few hundred yards of other people’s victories. Almost all financial achievements are preceded by a long period of learning and building momentum. Whether it’s learning to code before becoming a tech entrepreneur or saving up for a down payment on a house, meaningful changes take time.
If you can only take small steps, just keep taking small steps. It can be tough seeing how fast everyone else seems to be moving. What’s not obvious is how much time it took them to develop the speed you’re seeing. Understanding how much time is involved in making meaningful improvements is the foundation for positive financial decisions.
How to Use Time to Your Advantage
The best way to get time working for you is to start now. Start small, start slow, start without it being perfect. Then your job is to continue what you started, however slowly you’d like, and to learn and make adjustments along the way.
5. Prospective homeowners: Ask about a zero-cost mortgage
While reporting on mortgages, the most overlooked strategy I’ve come across for reducing your mortgage cost is to ask for lender credits in exchange for a higher interest rate. In this situation, the credits would be used to cover the loan fee portion of your closing costs. A zero-cost mortgage means you’d be paying a lot less out of pocket every time you buy a home or refinance.
Here’s why I plan to get a zero-cost loan:
- By reducing the upfront cost I’ll have more liquidity.
- What I would have spent on upfront closing costs can be used to pay down the mortgage balance, invest in a retirement fund, or set it aside for unplanned home repairs.
- If I move or refinance a combined six times in the next 30 years, I’d pay closing costs (3%-6% of the loan) six times. So for me, taking the higher interest rate with a zero-cost loan is cheaper because our future plans aren’t set in stone.
When researching lenders, ask if they have a zero-cost loan option. Compare your options and see which one makes the most sense for you. In my experience, the zero-cost mortgage is not as common or widely advertised. Also, the zero-cost mortgage is different from a no-closing-cost mortgage. A no-closing cost mortgage is when the closing costs are rolled into the total loan balance.
How to Pick the Right Mortgage for You
Any time you take out a home loan, you’ll want to be sure that you understand all your options. Ask a lot of questions and work with a professional who will help you understand your options, rather than just someone who gives you “the answer.” In my experience, most borrowers are overly concerned with the mortgage rate and overlook the closing costs. Interest and closing costs can be easy to miss because they might be added to your loan balance, but you’re still paying even if you’re not paying out of pocket when you close.
The above practices have given me the patience I needed to establish financial habits that will last a lifetime. They worked for me. But it doesn’t mean you should take the same approach. If nothing else, use these concepts to start thinking about how you can approach your finances differently or to start asking questions you hadn’t considered before. For more information, check out this library of resources on NextAdvisor’s savings page.