Practical Skills: Money
It’s definitely not all about the Benjamins, but the Benjamins do count.
First of all, please understand that nothing I write here constitutes legal or financial advice. I’m simply sharing basic, commonsense suggestions and my own financial philosophy -- and I’m mainly speaking to those who aren’t struggling to meet basic needs. Money advice is often classist, and finding neutral territory that applies to most people is relatively tricky. Please disregard this week’s newsletter if you feel you’re in a very different financial situation. Just use what suits you and discard the rest.
I’m only bringing up money because stress from these issues can affect our health and harm our relationships, so I believe it’s essential to examine our financial well-being along with our emotional well-being.
With that in mind, here are six ways to make money less stressful in the long run:
You need to start where you are, but you have to know where you stand. I work in accounting, and it sometimes astounds me how many people don’t know how much money they have. They may not know how much they make each year or how much money they owe. You need to know all of these things, and even if the truth makes you uncomfortable, it’s better to know than not know. Take some time to add everything up and get it out on paper.
You need a budget, but a budget may not be what you think it is. People tend to think of budgets as money “diets” or a provisional way to cut back on spending when your expenses are too high or you have a lot of debt. I feel that’s a limited view. A budget is a spending plan or a money roadmap. It gives you directions on how to get from point A to point B. Yes, your money goal may be getting out of debt, which may mean spending less on some things to pay everything off. But it’s still a planning tool, not a punishment. It also allows for flexibility. To take the roadmap analogy further, if you run into an unexpected monetary street closure or the financial equivalent of a washed-out bridge, you can take a moment to re-route your journey. That’s what an effective budget does. It allows you to cover your bills, make room for fun, and plan for the future. It’s also invaluable to know how much you’re earning versus how much you’re spending. Without that knowledge, you can’t make any thoughtful financial decisions. So first things first: Figure out what you usually spend, then develop a plan for allocating your funds in the future.
If at all possible, live within your means. I know this is a controversial opinion in some ways; debt is difficult to avoid. Yes, many people take on debt for “good” reasons, like taking out student loans or mortgages, and others are saddled with unexpected debt from medical crises and unavoidable disasters. But it’s also true that many people never compare how much they’re earning to how much they’re spending until they’re in such trouble that debt collectors are hounding them. Once you acquire debt, there are only two solutions: You can either spend less or earn more until you pay it off. (And please stop digging the hole deeper! If you’re in debt, stop creating new debt.) Avoid unnecessary debt in the first place if at all possible. Save for larger purchases instead of putting them on credit cards. Many factors make living within your means more challenging, such as low wages and other systemic limitations, but it is possible for many of us.
Spend your money according to your values. Although this sounds pretentious, I simply mean that you can tailor your spending to reflect what’s important to you. Once you have your budget balanced, you can spend more on the things you really want -- and stop spending on things you don’t care about. If you love exotic vacations, you can cut back your spending on everything you deem less important and salt away the difference for your next adventure. Your money can help to support your larger goals in life. You can contribute more to charity, host a big family dinner once a month, or take those sky-diving lessons you always wanted but didn’t think you could afford. What you value most will be unique, and your budget should reflect that.
Save some portion of your income and invest for your future (if you can). Again, once your budget is balanced, you should start to save for emergencies and retirement. Considering that 63% of households in the U.S. could not cover a $500 emergency, even a small emergency fund can make a massive difference to your peace of mind. Not everyone needs to aim for early retirement, but almost everyone can benefit from knowing they could weather a small financial storm. (P.S. Although it’s better to start saving when you’re young, it’s rarely too late. Even retirees have unexpected expenses.)
Yes, you really should reconcile your checking account, even if you never write checks. Another controversial opinion! If there’s one common thread throughout this entire discussion, it’s that knowing is better than not knowing. When you log into your account, the bank balance you see isn’t how much money you have. It’s how much money the bank thinks you have -- but the bank doesn’t have the complete picture. There may be pending deposits or debits. Even in these internet-connected days, bank transactions are not all instantaneous -- and virtually everyone forgets about an automated payment now and again. You need to keep track and balance your records against your bank at least once a month -- more frequently if you live very close to the financial edge.
Anything you can do to reduce money stress is valuable. True, there’s always a chance that a careful examination of your financial well-being could lead to more significant life changes. You may discover that you want to change jobs or drastically simplify your life. But as I’ve repeatedly said, it’s better to know than not know. And just think how well you’ll sleep at night if you worry less about money.
Other Resources:
Here’s an easy method to set up a personal budget from Clark.com. (This Google Sheets budget spreadsheet from the same site is also very handy.)
Personal Capital is free online software that can help you track your net worth and monitor your budget. It does take a bit of time to set up, especially if you have a lot of bank and credit card accounts, but it’s simple to use after that. (This is what I use to track our spending.)
I like Modern Frugality for the writer’s approachable, friendly tone, and I also like the podcast she co-hosts, Frugal Friends. Unlike some famous personal finance personalities, Jen and Jill are aware of their privileged positions and don’t approach personal finance in a way that shames anyone. It’s refreshing. (Modern Frugality has resources available for a wide range of people, from those working to pay off their debt to folks who are ready to start investing.)
Frugalwoods is a little more “hardcore” and geared more towards those using frugality to achieve financial independence (or early retirement). I’ve gotten a lot out of the yearly Uber Frugal Month Challenge they hold each January, and I also enjoyed her book, Meet the Frugalwoods.
If you’re living close to the edge, I highly recommend Donna Freedman’s Surviving and Thriving, as well as both of her books. (Here and here.) She is a font of excellent advice for those surviving tough times, and like all of the other sources here, she doesn’t shame and blame people in extreme circumstances.
This guide from Forbes.com (see, it’s not just me, I promise) teaches you how to balance a checkbook and why it’s still necessary even now.