Personal finance has become a hot topic over the past few years, particularly with the pandemic and the financial impact it’s had on all of us.
As you’re getting started on your financial journey, you’ll realize there’s a lot we get wrong about money. And that’s ok. The most important thing is that you’re taking action, and getting in control.
I’ve spent seven years podcasting about money, and what I’ve found is that there are three things people often get wrong about personal finance. And I’ve felt each of them myself. All three have also led to delays in my progress.
Let’s start with the biggest one that often holds people back:
Finance doesn’t have to be difficult
For many of us, personal finance seems difficult, simply because we’ve never talked about it before. So there’s the awkwardness of seeking advice, and the overwhelm that comes with learning something new. The sooner you can accept you’re going to make mistakes, the sooner you’ll start seeing results.
Another challenge is the volume of information available and all of the technical jargon that’s thrown around. When ads and influencers are coming at you from all directions, it’s hard to know who to trust. And let’s not forget our good friend, social media, where it’s easy to get caught up in the comparison trap, running someone else’s race.
You have to remember that a stumble is better than a standstill. It’s the key to building momentum, and there are some things you can do right now to start making personal finance easy. The first step is to simply assess where you are today.
I can summarize this in one question: how much do you make, owe and save? One often overlooked step is reviewing and understanding each paycheck or income source. With direct deposit, you can put your money on autopilot, but this doesn’t mean you shouldn’t be looking at it!
You should also understand your debt if you have any. Is there a balance on a card where interest is eating you alive? Have you been paying the minimum when you actually could pay a little more? Do you need to look at refinancing a loan to get a better interest rate? When you start asking yourself questions like this, you’ll spot opportunities – and that’s where it gets fun (after the pain wears off). You can now build a plan with an understanding of why you’re doing it.
Lastly, you’ve probably heard more about emergency funds in the last year than in the last decade – especially the stat that fewer than 4 out of 10 Americans have enough money saved to cover an unexpected $1,000 expense, such as a trip to the ER or car repairs. If you haven’t focused on saving, there’s no need to dwell. You can begin now by paying yourself first when you receive any income. It’s as simple as allocating a percentage to savings before that money goes to anyone else.
Ideally, you could stock away 3-6 months of living expenses to help you get through a season or two of life, but remember to start small so that it’s manageable. Maybe you want to tuck away $100 a month. You can grow how much you contribute over time based on hitting and increasing your goals.
Finance doesn’t have to be boring
When I started listening to personal finance podcasts, I was often bored to sleep. It felt like I was being lectured or talked down to, and that doesn’t quite work for a millennial like myself.
I encourage you to make it fun, by challenging yourself to save or make more money. Experiment a little. Set up some friendly competition with friends, family or your partner. Reward yourself for achieving certain milestones. How do you like the idea of paying yourself a quarterly bonus?
And if you’re goal-driven, you might like the idea of setting emotional goals. These are goals that when you think about achieving them, you feel something. You might even get goosebumps. Having that long-term carrot will keep you on track during the challenging times.
Finance isn’t just about the money
What often gets left out of the personal finance conversation is the importance of career progression. If you’re like me, the day job is what pays the bills. Understanding how to negotiate your salary for $5,000 more when starting your career could be worth more than $600,000 over the course of your working life.
There’s also the opportunity for rewards like signing and performance bonuses that could help you achieve your financial goals. For example, in 2018 I used my annual performance bonus to pay off credit card debt, and a bit of company stock to pay off my car note two years early and become 100% debt-free. Good career decisions led to good financial outcomes.
Two of the best investments I’ve made were in a therapist and a coach. I found a therapist in 2017 during a pretty turbulent time, and connected with a coach in the summer of 2020. A lot of good things have happened professionally and financially that likely wouldn’t have without this support system. If you’re an emotional spender, you know how your bank accounts look when you’re stressed. Both these folks have helped me through some difficult times.
So these are the three areas where I’ve consistently heard misconceptions about personal finance. What other areas come to mind for you? What’s been most surprising in your money journey?
Written by Rich Jones of paychecksandbalances.com