When you look at personal finance writers, you are usually going to find people who fall into one of two categories. 1) Those who emphasize increasing income with side hustles or asking for raises. 2) Those who emphasize reducing expenses by eating at home and foregoing the daily latte. It’s not true of every blog and podcast out there, but if you look at the majority of them, you’ll find they lean one way or the other.
People are the same way. Often, we either feel more comfortable reining in what we spend or ‘dream big’ and look for the side hustle or career breakthrough that will shoot our income through the roof and let us leave money worries behind forever.
Team Spend Less
Folks on team ‘spend less’ cite millionaire sports heroes who have declared bankruptcy and the fact that most lotto winners who cashed in to the tune of millions are broke again within just a few years. (True. You can look it up.) Obviously, they point out, all the money in the world won’t fix your problems if you can’t control your spending. So there!
Team Dream Big
On the other hand, team ‘dream big’ points out, you can only reduce your expenses so much, but your income can increase infinitely. Plus, while you’re trying to save $0.07 per serving by soaking your own dried beans instead of splurging on that outrageously overpriced can of beans, your life gets smaller and smaller. That’s no way to live. Mic drop.
Yup. And Yup.
Like most things in life, both are right and both are also a bit wrong. (Imagine that! Nuance. A life lesson that can’t be contained in a 10 second sound byte. Hm, who’da thunk?)
So here’s the short version. No, you can’t save enough to put yourself on sound financial footing if you make $15K a year and have 5 kids. It’s just not gonna happen. But if you ignore the saving side entirely, no amount of money will ever be enough. Just like your income can always increase, so can you always manage to find more things to spend your money on.
The trick – and this is the part that no one can do for you , you’ve got to do it for yourself – is to find that balance, an then stretch yourself just a bit beyond your comfort zone in the area that makes you uncomfortable.
Out of the comfort Zone
I’m naturally a minimalist. I don’t like wasting things and I am NOT a stylish person. So I just don’t spend a lot of money. Interestingly, I sometimes push myself to spend more. I don’t want my life to become small and stunted because I’m trying to save a few pennies. So I try to think about what really matters to me and spend on that. For me, that’s travel. So I make a point to travel, but I also figure out what does and doesn’t matter to me about travel. Fancy restaurants? Not so much. I hit the grocery stores and have myself a picnic on the grass. But yeah, I’ll spend a bit more on a larger AirBNB so my three kids don’t drive me crazy in a tiny studio. (Trust me, it works out better for all of us that way.)
On the other hand, I LOVE side hustles. I have owned rental real estate, worked on the side as a real estate agent, run a blog, taught private language classes, and created an online class. My advice here is to find something you enjoy doing anyway, and then maximize your income from it. Do you love dogs? How about doing dog walks in the summer or even pet sitting for owners who are out of town? Maybe you are into reading. How about doing indexing on the side? And if you are open for some teaching after you step out of your classroom, you can make awesome money teaching private group classes. (Click the links if you want to know more details.)
Like anything in personal finance, it comes down not just to knowing the facts and the numbers, but to knowing yourself. So if you are a spender, try one little way to cut expenses. No one is asking you to go all out. Or if your know deep down that you really need to increase your income, start trying on side hustles to find one you enjoy so much you’d do it for free. Because neither team ‘spend less’ nor team ‘dream big’ can win this game alone.
One of my best and oldest friends is also a teacher, also willing to talk about money, and also does pretty well financially. This means we know a lot more about each others’ finances than most friends because we just chat about that stuff without it getting all weird.
However, she has a totally different style than I do. TOTALLY. Whereas I am always ready to jump into the next new thing, she does NOT like change. She’s awesome, and whenever change occurs, she totally kills her new venture, but it takes a lot more time for her to get on board. So when she read my blog, she had some advice for me: Keep it Simple, Stupid.
OK, she didn’t use those exact words, but we’ve known each other long enough that I can read between the lines. And I may be stupid, but I know enough to value other perspectives, especially ones from someone whose financial advisor refers to her as a “financial rockstar.” (Seriously.)
Let me give you a little background info. She has requested to remain anonymous, so I’ll call her Anne. Anne is 40 years old, single, and has taught in the Midwest for 17 years. She owns a modest 3 bedroom home in a nice, but not fancy, neighborhood in a small town. If it’s not paid off, it will be soon. She buys a new car (not used) every 7 years or so.
She really enjoys going out with friends to restaurants and wineries. And travel is a big part of her life. She has been to South America, several countries in Europe, and more cool spots in the US than I can count. She volunteers for a lot of community organizations, but hasn’t had any other paying gigs since she started teaching. She is not into side hustles, but has invested in and managed rental real estate. From what I hear (and she is pretty darn modest, so I imagine she understates her success, if anything), she has done well in real estate, but in a slow, steady non-flashy way.
As you can see, she doesn’t live like a hermit. She enjoys a lot of wonderful things in life, and she isn’t working her life away.
What she has accomplished
When her teaching job got cut to ½ time just a few days before school started (She’s a specials teacher, so that stuff happens sometimes.), she didn’t blow a gasket. She just lowered her retirement contribution and started job searching. She literally lived on half her salary for a year while she prepared herself emotionally for the big change. She taught part time for a year (loved it!) and then found another job that suited her.
As a 29-year-old teacher, she had stashed approximately $45,000 in her Edward Jones account.
In January 2020, just before the big nosedive in stocks, she had $308,000 in her retirement account.
As I mentioned before, she has paid off her house (or very nearly). And not in 30 years, either. In about 15.
We were talking recently about our different approaches toward money, she underlined how it was really doing the simple things that made a difference for her. For example, she invests in her retirement account every month, no matter what. Even that year when her income got cut in half, she found a way to invest something every paycheck. She’s all into that low-hanging fruit. Do the easy stuff, she says. If you do the easy stuff, the payoff is often bigger than you can imagine.
So here are some tips from Anne, in her own words.
Always invest. ALWAYS.
Anne says: “When I think back to how I have gained my wealth, some of it has come from the rentals, of course. But really, it is because I have done little things that have made a big difference over time. (Sorta like you post about jill from 2003 and jill from 2012).
Let me explain: I have been cleaning out files and decluttering my filing cabinet. I just found my Edward Jones statement from 2009. Want to know how much money I had in there at that time? Roughly 45,000 dollars. Not too shabby for a 29 year old teacher. I was pretty proud of myself back then. In January 2020 before the nosedive that the stock market took, do you want to know how much money I had in Edward Jones? $308,000!!! Yes! For a single income public school 40 year old teacher. Do I have that much in there now, no way! But it will come back, at least, that is what I am telling myself. And it is all because I put in the maximum amount for my IRA each year. Either 5-6,000 dollars a year (It has changed over the years). Not exactly sure what it is now. I rarely put extra money in, money outside of my IRA, because I just don’t have it. Right now I am trying to scrape together some money to sink in to the stock market while it is down, because it’s a sale on stocks! So I have done minimal work for that gain. I have just let time do its thing. Lots of people don’t have 5-6,000. I get it. I don’t think I started out maxing out my contribution either. But the key is to put it in there and let time help you out. I think that is a crucial piece that needs to be hit on.”
Make your investing automatic.
Anne says, “When I was a young naive teacher, one of the smartest things I ever did (Besides switching to PE) is I started having money taken out of my paycheck and put in my 403B without me even seeing it. At first I noticed it. But then I forgot about it. And each year I got a raise, I automatically went in and raised the amount to be taken out by 25 or 50 dollars. This then comes out of my pay check before taxes, plus I never even knew I had it, because the raise covered it. I changed it by 100 or so dollars when I got my masters. Today, I am taking home only slightly more than I did as a new teacher. My 2 week take home is roughly 1100 dollars. I think I started at 850 or so. But here is the thing–$450 or 500 a month is going into my 403 B and the school district puts in a % of that. Is it a lot? Nope, but a little over time adds up to lot. Plus I have some of my paycheck directed into a savings account before I ever see it each pay period. Then at the end of the year, I use that money for my IRA contribution, or vacation, etc. Also that helped when my position got cut to part time. That was the only time I lessened the amount that I was putting into my 403 B and savings account. Even part time, I managed to put in 25 dollars a paycheck. Because I still wanted my employer to contribute their percentage. But that gave me back that extra money that I “Never saw” so I could live on 1/2 my usual salary.”
On rotten days, pay yourself, not somebody else.
Anne says, “After a really rotten day at school. You know the days–the ones where you are defeated and you think to yourself, “There ain’t no way I can do this job for another year, let alone 15 years!” I always come home and put in 25 dollars into my savings account. Instead of going and spending $25 dollars on retail therapy or at a restaurant or bar, I put $25 in my savings account to feed my retirement. And it wouldn’t have to be $25. It could be $5 or $10. Just something I started doing years ago when I needed to physically do something to better my situation. Might not be much. But it makes me feel closer to being able to walk away from teaching.”
Be like Anne
Here’s the bottom line: Anne is proof that teacher doesn’t equal poverty-stricken. She did have some major advantages like graduating from college without debt and not having kids. (Kids are wonderful, but expensive as all of us parents know.) But she has found a way to live and enjoy life while still socking away some major bank. And she has done it by doing the things that are easy and putting them on autopilot.
If you are thinking, “Sounds great, but I can barely pay my bills, much less have any money left over,” check out my 5 Day Found Money Challenge. See what you are spending money on that you aren’t even using, cut your costs, and keep the $$ for yourself.
No one likes to think about recessions. They can range from unsettling to completely terrifying depending on your financial and job situation. But when you couple a economic worries with the current anxiety about COVID-19, things get a whole lot scarier. If you are still earning a paycheck, but are starting to realize that your personal economy isn’t as strong as you would like, read on for 6 things you can do to prepare your finances for COVID-19, even if everything else in your life seems out of control.
Check your monthly bills
One of the best and fastest ways to make yourself feel as if you have more control over things is to lower your monthly bills. I know what you are thinking: “Dude, we’re in a lockdown, I am NOT getting rid of Netflix to save $20 a month.” But what if you could lower your bills without getting rid of ANYTHING? A few years ago, I decided to check all of my monthly payments, even the ones I didn’t want to get rid of. It didn’t take more than a couple of hours, and I lowered my monthly bills by $50 without cancelling a single service. Add to that some of those “free trials” that I had forgotten to cancel before they started charging me, and I lowered my monthly bills by another $100 on services I didn’t even realize I was paying for!
Here’s the big thing. Even though it seems like a drag, you need to call EVERY service you pay for monthly. When I did this for the first time after my husband and I were married, I found out we were still subscribed to the DVD-by-mail service from Netflix. We loved Netflix, but hadn’t seen those DVDs in years. I found them, sent them back, and cancelled that part of the subscription. It only saved us $12/month. But when you add it up, we had probably spent over $100 for those 2 DVDs that we never. even. watched.
If going through your bills sounds like a great idea, but you don’t know where to start, I’ve totally got your back. I’ve created a Free 5 Day Found Money Challenge. It will take you step by step to help you find money you may not even realize you are spending, including word-for-word scripts to request special offers and lower your bills. What would it mean to you to pay $150 LESS per month for things you totally don’t even realize you are paying for? So click here if you are ready to find some money.
Create an emergency fund
Now that we’ve got you a little bit of room in the monthly budget, let’s move on to step 2. The most important thing that will help the average person weather a financial crisis is an emergency fund. However, an astonishing number of people don’t have any money in savings at all. So if you’re in that boat, you are not alone. Knowing you’re not the only one isn’t going to pay many bills, though, so let’s change that fast. If you’ve started lowering your bills with the 5 Day Found Money Challenge, you’re in a great place. Take the money you used to be spending, and start – or add to – your savings.
By opening a bank account at a totally separate bank
Maybe you have the best intentions to do this. Maybe you have even tried before and the money just seems to evaporate. If so, here is the step you’re missing. This money can’t be at your normal bank. You need to open a totally new account at a totally new bank.
“Why? Why would I do that?” you’re thinking. “That makes it such a hassle to get my money out.” Yes, folks. We have a winner. That is exactly the point. This is supposed to be where you KEEP money, emphasis on the KEEP. We don’t want it to be easy to get to. We want it to be possible to get to it, but definitely not easy.
Now that we’ve got that cleared up, here are the details. It can be a savings or a checking account, but it should be a FREE account. There are lots of no-frills accounts where you can just park money for free. As a matter of fact, a lot of banks will actually pay to to open an account, especially if you have some money to deposit when you open it. If you want to take the time to find a place where you can earn a couple hundred dollars for opening account, check out this link. Just be sure to read the fine print. And again, make sure that this new account isn’t costing you any of that hard earned money you just found.
Now figure out how much money you want to put aside each month, and set up an automatic transfer. This is the way my husband and I saved over $40,000 in a year. When I went back to teaching full time, I set up a separate account at a new bank. Then I had my ENTIRE paycheck deposited there. We never saw that money, so it didn’t get spent. And since we were used to living on his salary, we didn’t even notice. But that never would have happened if my paycheck had touched our joint account. It had to be separate.
How much should I save?
Honestly, as much as you can. Most experts recommend that a fully-funded emergency fund should be 3-6 months worth of expenses. If you’re starting from scratch it’s going to take quite a while to get there, so for now, get enough that you can sleep at night. Unless you have reason to believe you or your partner are going to lose your job, I would say no more than about 2 months expenses if you still have credit card debt.
Why not as much as possible? That’s a great question. The bottom line is no one can predict the future. But if you have high interest credit card debt, you are paying HUGE amounts of money in interest alone. So you don’t want to be sitting on a ton of cash at the same time you are paying 25% interest on credit cards.
Finding the right balance
One way around this Catch-22 is to set a certain amount for a starter emergency fund, and then switch to paying off debt. When all debt is covered, then you switch back and finish up the emergency fund. For me, I would have a lot of trouble sleeping at night if I didn’t have at least one month’s worth of expenses saved up. So maybe the logical thing to do is to focus on saving a one-month emergency fund, then paying off one credit card, then saving another month, and so on.
If you have read my series on Dave Ramsey’s Baby Steps, you’ll realize that this is contradicting his advice to save only $1000 and then pay off ALL debt before finishing the emergency fund. But there is a reason I don’t like that advice at this exact point in time. There is so much uncertainty right now. Nobody can predict what the next week will bring, much less the next month or even the next 2 months. In times of uncertainty, cash is king.
For example, what if someone in your family gets sick and racks up huge medical bills? Cash gives you options. So let’s get some options, in the bank, OK?
Pay off debt
OK, so you have decided to get an emergency fund saved up. And you’ve chosen an amount to start with, one that’s enough to let you sleep at night, but not take 6 months to save up. Now it’s time to kick the debt pay off into high gear. For this, definitely start with your smallest debt. Why? Because every debt that you pay off is one less payment you’ll have if you get laid off. Even a reduction of $50/month in minimum payments can reduce the stress and make the emergency fund go a little further.
So this is what you do. Make minimum payments on everything but your smallest debt, and pound that sucker. Pay it off as quickly as you possibly can. Put every extra penny toward paying off that first debt. When the littlest debt is paid off, take that minimum payment, add it to the payment on the 2nd littlest, and pound that one.
Once you’ve paid off a few debts, you might want to re-assess. Does your job seem stable, or is there trouble on the horizon? If it seems stable, you might want to stay the course. But if there is talk of a RIF at work, or if your partner’s job seems shaky, you might want to increase the emergency fund a little more before you pay off any more debt.
Create a side hustle – or two
It sounds crazy to do when you can’t leave your house, but there are always ways to make money if you keep your eyes open. They range from a few extra bucks to over $2000 a month. Some will pay off right away and others will take time to ramp up.
For a little extra money, try doing surveys online. If you want to make some serious cash think about what skills you already have and how you can make money with those. If you’d like to get the real scoop on VIPKID, you can check out my interview with a friend of mine here. She’s been doing VIPKID for almost a year and it really works for her. Another friend has built a successful indexing business and earns a full-time income from it. You can read more about that one in this blog post.
The best thing about a side hustle is that this it goes hand in hand with the others and will help them to go a lot faster if you do it right. Ay extra money you make gives you more money to put toward your emergency fund or your debt. The important thing here is not to spend much money setting it up. Times like these bring scammers out of the woodwork, so if somebody wants you to pay for the chance to make money, do some serious research before plunking down any of your money.
There is one SUPER important thing to remember here, though. Any money you make from a side hustle might not have taxes withheld, especially if it is a small business you start on your own. Make sure to put about 25% of that money back so Uncle Sam doesn’t surprise you with a big tax bill next April.
Update your skills
If you feel like your job isn’t as secure as you’d like it to be, getting a few new skills under your belt might be just as important as income. Focus on skills that would make you more valuable in your current job or more marketable if you needed to go job hunting. Computer skills are always a good bet, but if you are almost proficient in a foreign language, that might be a good choice, too.
Again, spending an arm and a leg isn’t a good choice. But you can get an absolute TON of learning for free online. Check out this list of the 10 best sites for FREE learning. Or this one for specific IT courses.
Choose and implement 1 new frugal habit
One of the things that trips a lot of us up when we want to reduce spending is feeling like we have to rein it all in at once. We rush in, slash like crazy, and then give it up after a week and a half because it’s just too overwhelming.
Let’s not do that, K? Instead, pick one item, JUST ONE in which you could make some cuts. Then create a plan. If you have been engaging in a lot of – um retail therapy – cutting that out would be a huge one. Maybe you’re ordering take out, but have plenty of time to cook now that you’re at home more. How about learning just 2 new recipes? Or if you’re already comfortable in the kitchen, maybe try your hand at freezer meals so you can avoid expensive take out when this is all over.
Again, don’t try to do it all. Choose one thing. Just one. And do it until it becomes easy.
Again, I’m sure you have a LOT more ways you could cut expenses, but pace yourself. This ain’t no sprint. It’s a marathon, Honey! Give yourself time to really solidify one frugal habit before you rush into another one. My suggestion would be to aim for no more than one new money-saving habit every 2-4 weeks. You want it to become so routine that it doesn’t takes almost no willpower at all to continue it. That way, when you add another habit, the first one doesn’t fall to the side.
