Financial planning is difficult to do alone, even without a global pandemic and economic recession. That’s why we talked to financial planners and advisors from across the country to come up with the best set of money tips we could find. These aren’t get-rich-quick ideas, they’re positive, habit-forming strategies that can put you on the road to financial independence.
Here are some simple tips straight from financial advisors that can help you take better control of your money.
Make Prioritizing a Priority
Before diving into the dollars and cents, many financial experts advise starting with something a bit more introspective. To Stephen Caplan, CSLP®, of Neponset Valley Financial Partners, everything starts with reflection and understanding.
“My number one personal finance tip is always this: understand what money is. Money is a tool that can be leveraged to live the life you want,” Caplan said. “The key is for each person to really think about what is important to them and to align their financial habits with their specific goals.”
Caplan added some concrete advice – track your spending diligently and avoid credit card debt – but everything revolves around setting and sticking to your own financial priorities.
Jenna Biancavilla, a financial advisor and the owner of Pearl Capital Management, says understanding your financial priorities helps everything else fall into place. Once you’ve established what’s worth spending money on, bad spending habits will naturally fall away.
“Take time to think about and understand your life’s priorities. Next, change your mindset from ‘I cannot afford that’ to ‘spending money on that does not align with my priorities’.” she said.
“When you have a solid understanding of your priorities, the small insignificant splurges/indulgences on coffee, clothes, or restaurants no longer seem important.”
In addition, Biancavilla recommends paying yourself first, a relatively common tip from advisors. Basically, she says you should automatically send a portion of each paycheck to savings, and resolve not to spend it.
Think Small to Win Big
One common mistake people make when setting financial goals is shooting too high. It’s not that ambition is bad – if you shoot for the moon and miss, you land in the stars. But big goals can lead to steep climbs and severe disappointment. Taylor Jessee, CPA, CFP®, and Director of Financial Planning at Taylor Hoffman in Virginia, recommends tackling goals in small chunks and turning small, consistent wins into major victories.
“Plenty of studies show that setting small goals is much more effective than grand, generalized goals,” Jessee said. “If you think small, it becomes much more achievable in your mind which makes it likelier you will follow through.”
Jessee, like Biancavilla, also suggests automatically sending part of your paycheck to savings each month, and bumping up your 401(k) contribution by 1 percent. Many financial advisors recommend taking on smaller-scale, actionable goals, as opposed to starting with the final vision and working backward.
“More complicated is not necessarily better, and doing something is better than doing nothing. A lot of people want a “perfect” plan before taking action,” said Timothy Iseler, Founder and Investment Advisor Representative at Iseler Financial. “Since life is never perfect, that mindset tends to leave major areas of risk and growth unaddressed. A simple, actionable, and repeatable plan that can be started today is often more useful – and less stressful – than a ‘perfect’ plan ‘when the time is right’.”
Iseler also stressed the importance of compounding credit card debt and emphasized that borrowers should tackle debts with the highest interest rates, not balances, first. Even a marginal difference in interest rate can add up over time, and “rapidly spin out of control.”
Stay on Top of Credit
Outside of your bank balance, your credit score is arguably the most important number in your financial life. Many financial advisors point to boosting your credit score as a relatively straightforward way to boost your overall financial health.
“A poor credit score could mean paying sky-high interest rates on credit cards and loans – if you’re approved at all,” said John Corraro, a financial planner with Barnum Financial Group. “On the other hand, having a high credit score means borrowing money at the lowest rates available.”
To actually get your score up, Corraro has some direct strategies:
- Pay bills on time
- Only use up to 30 percent of your available credit at a time
- If you have no credit history, start ASAP
- Pay off a mix of credit types (car, credit card, etc.)
Corraro agreed that paying down debts with high-interest rates is the right financial decision. However, he acknowledged that wiping out low-balance debts can be a satisfying and motivating experience that encourages good habits.
Since you can access your credit report for free three times annually, most financial advisors say you should keep tabs on your credit at least once per year.
The 50/30/20 Budgeting Plan
The 50/30/20 rule is a staple of simplified budgeting and a favorite of financial advisors. The concept is to spend 50 percent of your monthly earnings on essentials like rent, food, utilities, etc. Another 30 percent is set aside for non-essential spending and the final 20 percent should be stashed in savings.
“It can be difficult for younger folks, new parents, etc. to meet all basic needs using only 50 percent of their take-home pay, but this is where we all learn to make choices: any overage in the 50 percent category should come from the 30 percent category,” said Kateri Turner, A CFP® with GEBA. “For example, a new car payment that brings your ‘needs’ to 55% requires sacrificing something in the ‘wants’ category to bring that down to 25 percent.”
This budgeting rule isn’t overly complex, but it can pay major dividends down the road. Turner called it a “great starting point,” as it helps reinforce good spending habits, forces us to prioritize spending, and builds savings.
“If the average American, making $40,000, consistently saved 20 percent for 40 years, they would be worth well over $1 Million dollars in retirement,” said Brian Halbert, VP of Retirement Services at Pensionmark.
Halbert has one tweak to the 50/30/20 rule, though. He says that many budgeters would be inclined to divide their money through the month in order – 50, 30, 20. However, he argues that the plan could be more effective if you pay yourself first and stash 20 percent into savings at the start of the month, as opposed to the end.
The Bottom Line
While much of these tips are universal, remember to make plans and goals specific to your own financial situation. Even when advisors discuss rules and plans, many urge consumers to make the plan work for them, not vice versa.
Hopefully, some of these tips can help you stay on top of your finances in 2021 and crush your financial goals in the new year!