Editorial Policy

The Best Personal Finance Advice I’ve Ever Received

Allie Johnson

March 21, 2013

I’ve been a personal finance junkie since I got my first job after college. At first, I scoured books and websites for money advice because I was bad at the basics, like paying my bills on time and saving. I got better at managing my money, but kept reading to find new tips and tricks.

Over the years, a few big pieces of advice have stuck with me and changed the way I handle my finances. Here are some of my all-time favorite bits of personal finance wisdom:

1. Automate it. This is a classic piece of money management advice. I first read about the idea of automating finances years ago in David Bach’s book “The Automatic Millionaire.” In it, he recommends automating everything from your bill payments to your emergency fund savings. Automating is such a simple idea, but it saved my finances and my credit score. I used to loathe paying my bills and would put it off, meaning I got zapped with late fees and risked those bills going into collections and hurting my credit score. Now, my bills are always paid on time and saving is easy.

2. Balance your money. The idea of the “balanced money formula,” from the book “All Your Worth” by Elizabeth Warren and Amelia Warren Tyagi, was life-changing for me. According to the formula, you should aim to spend 50 percent of your money on must-haves (rent, food, electricity, etc.), 30 percent on wants (which include items like cable TV, non-necessary groceries like ice cream and even clothes you don’t absolutely need) and 20 percent on savings. The authors say that following these guidelines will help bring harmony to your financial life, and I’ve definitely found that to be the case. In our case, we were spending too much on “wants” that we thought of as needs, which made it hard to save as much as we should.

3. Focus on earning rather than scrimping. Time is limited, and we all have only a certain number of hours per week to spend thinking about and managing our finances. I find frugality to be kind of fun, so my natural inclination is to use this time to find recipes for cheap meals, cut coupons or learn how to make my own dish soap. But some posts on the blog I Will Teach You to Be Reach made me realize this might not be the best use of my extra time.

What if instead of spending three hours a week cutting coupons, I spent that time earning more money? Instead of saving $15 a week or $60 a month, I could earn maybe $150 a week or an extra $600 a month. If I put that extra money toward my mortgage, I could cut 20 years and more than $60,000 in interest off the loan. I’m self-employed, so it was easier for me to adjust my income than it might be for some, but some people could ask for overtime at work or find a way to earn income on the side. For example, I have a friend who earns several hundred dollars a month pet-sitting for neighbors.

4. Spend according to your values. I love this blog post on Sustainable Personal Finance about how, ideally, your spending should reflect your values. I’m not necessarily talking about giving to charity, though that might be part of it, but about spending money on the things that are most important to you and not spending on things that aren’t.

When I reviewed our budget last summer, I realized we were spending quite a bit on things we didn’t really care about. One was gas for our car: We were spending more than $100 a month, or $1,200 a year, for my husband to drive to work and for both of us to run multiple errands a week. We realized we could cut that expenditure quite a bit if my husband started riding his bike to work, which he was wanting to do anyway, and if we combined errands and made more purchases online with free shipping. That would free up more cash to spend on healthy eating — fresh fruits and veggies are really important to both of us, but we’d been skimping in this area to try to save money.

5. Enjoy life now. When you’re trying to get out of debt or save for a big goal, it can be easy to fall into a life-will-be-great-when sort of mindset. But, as this post from the blog Zen Habits reminded me, it’s possible, and important, to figure out how to enjoy life now — no matter what your money situation. Personal finance advice often focuses on saving for the future. But as blogger Lego Babauta points out, it’s equally important to “find ways to enjoy life completely, utterly, maximally … that don’t cost your future very much.”