7 Surprising Money ‘Rules’ Most People Don’t Know
You’ve probably heard common financial advice like keeping a budget and trying not to spend more than you make. But other tips aren’t as well-known that can help you save a lot of money and create a financially healthy life.
From daily hacks to long-term tips, we talked to financial experts about not-so-obvious money advice they follow. Here’s what to know:
1. Sometimes You Have to Spend More to Save More
“A low price on a lousy product is actually a terrible deal because you will end up spending more, in the long run, to replace cheaply made items that break easily,” Andrea Woroch, a consumer-finance and budgeting expert, told HuffPost. “Focus on quality and spend more if it means it will last.”
For big-ticket items, she recommends taking advantage of retail sales events and buying seasonal items at the end of the season. Other tips: Participate in free loyalty programs and search for online coupons before making a purchase.
2. Don’t Be Too Restrictive With Your Budget, and Don’t Try to Change It All at Once
“Although a detailed budget keeps you on track to meet your financial goals, one that is too restrictive will actually backfire quickly due to burnout,” Woroch explained. “[And] if you try to change all your spending habits overnight, it will be difficult to stick to the plan.”
Instead, she suggests making small changes to your spending and savings habits, then building on them once they become routine. It's also important to make room in your budget for expenses that matter to you. For example, if a dinner date with a friend or partner is a priority, keep this in your budget. Find other ways to cut down on spending.
3. Beware of Convenient Methods of Payment, Like Auto-Renew
“It’s extraordinarily easy in our society to spend money without thinking about it,” said Anne Lester, author of Your Best Financial Life.
But that can lead to unconscious spending. Instead, Lester advises slowing down to spend money more consciously. For example, create a shopping list before you go into a store or shop online. When reviewing your list, ask yourself: Do I need this? Is there a moment when I know I’ll use this? Just making the list will give you time to reflect on whether the purchase is worthwhile.
For subscriptions, it can be easy to forget ones set to auto-renew. Instead, review all your subscriptions and cancel those you’re no longer using.
4. Automate Saving Money
“You should automate everything you can about saving so you don’t have to make a conscious decision to do it,” Lester said. “[If you don’t] you set up a conversation … with yourself about what you could be doing with that money, and often you lose because getting stuff is more fun than saving.”
Consider setting up an automatic transfer to a high-yield savings account. For example, if you get paid at the end of the month, you can set up a transfer for the first day of the next month.
“Money in a checking account can be tempting to spend,” said Michael Finke, professor of wealth management at The American College of Financial Services. “Making regular transfers to a high-yield savings account can help you build an emergency fund without the pain of writing a check.”
Automatically transferring money to a retirement account is also a good idea. If you work for a company that offers a 401(k) plan, sign up for the full employer match.
“Not taking advantage of a match is like leaving hundred-dollar bills on the ground,” Finke explained. “Even if you took it out after a year and paid a 10% penalty, you’d still come out way ahead.”
If your employer doesn't offer a 401(k) plan, you can set up an individual retirement account (IRA) and still have money automatically transferred.
5. Pay Attention Even to Small Purchases on Your Credit Card Statements
When reviewing your credit card statements, it’s easy to focus on the bigger charges. But it’s key to also review the smaller line items.
“Not every fraudulent charge is a four-figure shopping spree,” said Sara Rathner, personal finance expert at NerdWallet. “Often, thieves test your card out with purchases of just a few dollars.”
These purchases are easy to overlook; if you miss them, bigger fraudulent charges could follow later on. Rathner advises checking your credit card statements monthly. If you see something you don’t recognize, report it to your credit card company immediately.
6. Have One Main Investment Account and Another for Short- to Mid-Term Projects
According to Elaine King, a certified financial planner and founder of Family and Money Matters, most of her clients have at least one long-term investment account. But she encourages them to consider opening another investment account for mid-term goals. Those goals can include buying a home, paying for education, purchasing an investment property or starting a business.
“When separating investment accounts, we aim to match the portfolio allocation to the specific goals and time horizon and, in the end, save you time and money,” she explained. If buying a home is on the short-term horizon, the “real estate fund” should be invested in short-term assets.
7. There Is No One-Size-Fits-All Approach When It Comes to Personal Finances
“Personal finances [are] personal and seasonal… [they should be] based on values [and] life circumstances,” said Kara Stevens, founder of The Frugal Feminista and author of Heal Your Relationship With Money. Once you understand that other people’s priorities are not the same as yours, you can figure out what works best for you.
Before creating a financial plan, Patrick Yono, founder and CEO of Sure Life Financial, recommends mapping out what’s important to you: What type of home do you want? What type of work-life balance is best for you? What interests do you want to pursue? Once you have the end goal, then you can figure out how to earn the money you need, what type of investments to make, etc.
Stevens added that we also need to be flexible and responsive to what’s happening in our day-to-day and in the larger world, and not feel bound by our financial rules.
“There are a lot of rules of thumb out there when it comes to money, but don’t feel pressure to follow them all,” Rathner said. “The best thing you can build into your personal financial plan is the flexibility to make changes as needed.”
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This article was written by Sarah Bourassa from HuffPost and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.
