Most people don’t learn about money in school. Instead, they adopt money habits from watching their parents, friends and coworkers make financial decisions.
Sadly, this leads many folks horribly awry. Detaching from their parents and supporting themselves financially is really arduous if you’ve never been coached or prepared as a kid. It’s no wonder so many Americans wake up in their 20’s, 30’s, or even 50’s wondering, “Why am I so broke!? I thought I’d be a millionaire by now!?”
The good news is: It’s never too late to start learning about personal finance and improving your money situation. The past is the past – and you have complete control of your financial future. We are here to help you get going and to offer you some of the advice you didn’t hear in those early years.
Here are some steps if you’ve never been taught anything about money…
1. Find free advice you can trust
If the people you’ve looked up to your whole life haven’t been teaching you how money really works, it’s time to find some new gurus! Financial literacy can be free (and dare I say, FUN) if you choose the right mentors.
Places to get started:
- Influencers 💁♀️: Your Insta or TikTok feed is actually a goldmine for financial advice! You just need to follow reputable money nerds that you can identify with. Follow influencers that eat their own cooking, the ones who walk the walk promoting genuine learning, not just showing off riches.
- Book Buildings 📚: Remember those ancient buildings filled with books? Yes, libraries! They’re still around, and still awesome. Here are a few books we love: Your Money or Your Life, Simple Path to Wealth, and The Psychology of Money. These will give you the time and space to digest important financial information.
- Pod Zone 🎧: Long-form podcasts have super valuable free money advice. Turn your daily commute into a finance seminar. Begin with these most listened to episodes.
- Non-Profit Gems 👨💻: OK, sure, most government and non-profit websites are as dull as dishwater. But they often have reliable info on personal finance, debt management, and retirement plans. Sites like USA.gov, MyMoney.gov or MoneyManagementInternational can be surprisingly helpful!
Now, here’s the fun part: spotting the wolves in sheep’s clothing. Sadly, there are a bunch of greedy humans out there trying to take advantage of clueless yet aspirational money students. So keep your guard up! If someone promises you overnight millions, demands upfront payment for advice, or insists you sign over your firstborn, run!
Legit financial advice is like a trustworthy friend – it can be hard to find but is definitely worth the effort. Searching for these gems is like a fun treasure hunt (literally!)
2. Track your spending
Budgeting 101: You need to know exactly where your money is going —> if you want to manage it better moving forward.
Tracking your expenses exposes all the sneaky areas where money is slipping out of your pockets. It’s a humbling task, because if you’ve never done this before you’re probably in for some big surprises! Most people spend waaay more than they *think* they spend.
Here’s the good news: This doesn’t have to be a very time consuming chore. Free apps like Credit Karma and Empower can track your spending for you, and neatly categorize all your transactions. All you need to do is log in monthly and review the totals. There are also some paid alternatives that we recommend too!
As ugly as your finances may be, expense tracking is a super important step. Looking at exactly where your money goes makes you “feel the pain” rather than ignoring problems. And the sooner you come face to face with poor spending patterns, the sooner you can start making the switch to good financial habits instead.
3. Plug the leaks
OK so you’ve started paying attention to your spending and identified some holes in your bucket… “I spent WHAT on take-out last month!?”
Now it’s time to launch an attack on those problem areas. Try money saving challenges, asking for discounts on stuff, and testing out some frugal hacks. Leave no stone unturned. Anything to reduce your spending.
Pro tip: Start with the low hanging fruit. These are the easiest line items to nix from your spending because they’re not providing any real value to your life. Things like unused subscriptions, overpriced insurance, junk food, etc. Cutting back on these gives you quick wins.
Then work your way up to the biggest impact items. Cars are a money pit, so anything you can do to reduce transportation expenses is hugely beneficial. You’ll find bigger savings in bigger spending areas like housing, groceries, and entertainment. Saving $400 in one area is sometimes easier than saving $40 in 10 areas.
Related reading:
- 27 ways to save money in life
- Taking advantage of free stuff
- Yes, you can negotiate your bills. Here’s how.
- 12 ways to cut down your car costs
4. Save $2,467
Building an emergency fund isn’t just about surviving financial storms, it’s also about crafting a bridge towards your dreams.
Economists have calculated that a minimum liquidity buffer of $2,467 can cover most of the common disasters people face in life. You’ll eventually want a bigger savings pile (like ~3 months of living expenses), but starting with a basic e-fund is your first line of defense.
Emergency funds ease financial stress, prevent you from taking on debt to get yourself out of a bind, and act as the cornerstone to building wealth. Without the worry of making ends meet in times of disaster, you can focus your attention on other financial goals.
Oh, BTW… You should keep your emergency savings in a separate account, completely out of regular reach. This helps when you’re tempted to dip into those savings for things that aren’t really emergencies. We recommend a high yield savings account, which you can read all about in this complete guide to emergency funds.
5. Get rid of any debt
If you’re buying stuff that you don’t have the money for yet, you’ll be a slave to interest payments.
Interest makes everything more expensive – even if you think you’re getting a really good deal on something. For example, let’s say you spot a TV that’s on sale for $800 (marked down from $1000). You swipe your credit card and make the minimum payments of $45 per month. Well, after two years, you’ll have finally paid off the TV, but you’ll have paid a total of $1,080 for it! Is it such a good deal now? Nope! 🙅♂️
Having revolving consumer debt is like trying to run a marathon with huge cement anchors strapped to your feet. Unshackling yourself is the only way you can move forward and make progress.
If you have consumer debt right now: Check out the debt avalanche and snowball methods. It’s crucial to free yourself as fast as possible.
If you don’t have any debt right now: Congratulations! Continue to avoid it (unless you’re buying a house 😉)
6. Begin investing
You’ll never save your way to retirement. You need to begin investing and putting your money to work for you. The more you invest and the earlier you start, the larger your retirement nest egg will grow.
Just like bad interest in the forms of personal loans and credit cards can work against you (when borrowing money), good interest can work in your favor (when investing money)!
Investing is not as complicated as it seems. In fact, after you’ve put your savings plans on auto-pilot, the rest is just “waiting.”
Check out this beginners guide to investing, which covers the basics like opening a 401k and Roth IRA. Almost everyone should start with these two accounts, as they have amazing tax benefits and are built for long-term retirement investing.
Two more important things to know about investing for beginners:
- First, it doesn’t matter how small or big you start. The important thing is starting. Even if you can only set aside $20 per week, that’s better than nothing. Don’t wait to invest, even if you have to start small.
- Secondly, chasing high returns almost always results in losing money. Stick with the slow and boring route to wealth. Focus on your contributions, not trying to outperform others.
There’s a big difference between saving vs. investing. Make sure you’re putting your money in the right buckets to meet your short-term and long-term goals!
Related: How to retire early
7. Keep learning & don’t overcomplicate things
If you’ve mastered all the steps above, you’re 90% of the way to a solid financial future. The final 10% is just continuing to learn and course-correct over time.
As a money newbie, you’re certain to make a few mistakes. We all do! But with each little hiccup on your journey you’ll build more and more valuable experiences. It’s all part of the process. And I promise that the pros of getting your money under control will always outweigh the temporary setbacks.
Here at How To Money, we have a passion for personal finance. But that doesn’t mean you have to become a hardcore money nerd too. Leave the quirky charts and technical investment strategies to those who have a knack for it. Just learning the basics will take you really far.
Your personal finance strategy should be as simple as a dog’s life motto (nap, eat, repeat).
The Bottom Line:
If you haven’t been taught anything about money, that’s OK! You’re in the same boat as millions of other people. The sooner you roll up your sleeves and start grasping these money basics and adopting frugal habits, the sooner your financial situation will start improving – and thriving!
The past is the past, and the only thing that’s in your control is the future. A little financial literacy goes a long way, so start slow and keep building up your knowledge over time.
Good luck!!
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I have money in Cal Savers right now.
Should i. keep putting money in it monthly, or tske it out and put it into a Roth IRA?
ps: i visit my parents once a month, and binge listen to you guys for hours in my road trip. I love the show!
Living Hazy IPA’s lately.
Cheers!