I love talking about money and money management and organization, so I hope this helps you. You deserve to feel empowered about your money! 💪
Before I got married, my husband and I took Dave Ramsey's Financial Peace University together. No, I would not recommend him today, but I have found his Baby Steps outline to be helpful. Lots of people have their own version of Baby Steps, and I'm going to organize this according to those basic steps.
I really like Lisa Chastain for this. She teaches a super simple tracking method where you basically you break down money categories like this:
Fixed Expenses (bills, rent, car payment)
Variable Expenses (groceries, gas, personal, etc.)
I also really like the way she teaches you to do this (I took her Get It Together Online course), which is basically to look back at one month of all your spending and put every transaction in one of these categories. Then do that for the past three months. Then look and see what your average costs are, what kind of spending you want to keep, and what you want to cut out. The videos are super short and the homework is really doable, and this helped me understand and manage my budget way easier.
Then I set up my EveryDollar app according to those categories, as well.
Lisa recommends having separate spending accounts at your bank:
Fixed Expenses - your rent can autopay out of here as well as bills, etc.
Variable Expenses - At the beginning of the month, you can put your allotted amount in here, and have a debit card for this account. This is your “envelope.” Then you can also track expenses in the app, so you can always see how much you have left in the account
Here’s how I like to use credit cards. One of the most helpful things I heard a finance coach say about this is that there’s a difference between HAVING debt and LEVERAGING debt. (I, too, used to be afraid of credit cards.)
Get a credit card that focuses on cash back rewards
Set up your fixed expenses to autopay on your CC
Don’t use it for anything else, just those fixed expenses that don’t change
Pay off your CC out of your fixed expenses bank account every week, two weeks, or month (however you want to do it)
Cash back gets deposited to your account. Take that money, and put it in an investment account. That’s literally free money compounding into more free money!
This way, you are never going into credit card debt. However, you are leveraging debt to your benefit to grow your own net worth and credit score.
Baby Steps 1 & 3: The Emergency Fund
It’s recommended that your emergency fund stay in liquid cash (meaning, not in an investment account). To arrive at your number, you can simply look at how much your expenses are each month, multiply that by 3 or 6 (however much you want to save). Plus the $1000 base fund.
But, savings accounts are crappy places to leave your money long-term because they don’t pay interest. The average rate of inflation each year is 3%, so what $1,000 will pay for today will cost ~$1,150 in 5 years. So do your research and put your savings accounts in high yield savings accounts.
They won’t pay 3%, but they will pay more than just an average bank account. Make sure to check for fees, account minimums, withdrawal limits, etc. It’s also okay (and some recommend it) to have your savings accounts at a different bank than your checking. That way you don’t see it and aren’t tempted to dip into it for non-emergency things.
You can also set up monthly auto-deposits to your savings accounts so they are being filled without you having to think about it.
Baby Step 2: The Debt Snowball
Dave recommends you do this immediately and ferociously (with “gazelle intensity”) after your $1,000 emergency fund. I don’t know if you have debt or how much you have, but there are lots of different ways to do this, and you can choose your own animal as far as how intensely you would like to pursue this goal. Factora Wealth offers a really great course called 6 Figure Savings that offers a pyramid progression instead of baby steps. Part of their course includes a helpful way to calculate your emergency savings number and helpful ways to prioritize paying off debt vs. saving vs. investing.
Baby Step 4: Invest in Retirement
This is where it gets exciting! I know this can also be intimidating. Because like, you want to retire one day obviously. But what if you also want to save to travel? Or save for a home downpayment?
Again I recommend Factora Wealth's Investing 101 webinars. They offer these for free every so often. By the way, Factora is a women-run company that teaches women how to invest and grow their net worth. It’s super helpful and informative and makes investing feel very approachable.
Baby Step 5: College Fund
529s aren’t the only option for investing for your children.
There are three investment accounts you can have for your children (and you can have all three of them!).
Custodial Savings/Investment Account
No contribution limits
holds and protects assets until they reach age of majority in their state
Can be used for anything
Counts against financial aid
Minor Roth IRA
Child needs to have earned income (can be allowance, babysitting money, etc.)
Money grows tax-free
Children can save for retirement, first home, education expenses or more
Can only contribute $6,000
529 College Savings Account
Federal and potential state tax deductions and credit
No age limits or annual contribution limits
Lifetime contribution limits $235,000-$520,000
Set it and forget it
Each state has their own college savings account
Penalties for using the funds for things other than education
Baby Step 6: Pay off Your Home Early
You can set up an investment account for the purpose of saving for a downpayment (or something else, but generally a mid- to long-term goal). There are also lots of other things you can do to speed this up, that Factora teaches about in their Wealth Circle course. For example, varying your downpayment amount, making 13 mortgage payments a year, using bonuses or extra money to make advance principle payments (check to make sure you're making advance principle payments), etc.
Baby Step 7: Build Wealth and Give
This step is what it sounds like. For building wealth, I highly recommend Dominique Broadway. She does a lot of free webinars about how to set up investment accounts for building wealth, and she also has paid courses as well. We do our banking at Fidelity, and if you're a member there they offer a ton of free education about investing. They also have investment accounts specifically for charitable giving, which is cool.