We’d like to introduce Ann, one of our team members at Advisage RVA. A career in the financial world and personal experience makes Ann pretty qualified to be dishing out advice.
Ann Thomas, CPA - This is the financial advice I’ve given my three “adult” children. Whether or not they listen is another story!
1. Don’t buy fancy coffee. Maybe that is a little extreme. OK, you can buy a fancy coffee now and then, but it should be a treat. Same goes for eating out. Buying coffee daily from the local barista or going out to dinner a few nights a week will run you a few thousand a year. Wouldn’t you rather use that money for an annual vacation or to fix your car? Buy your own to-go coffee cups and take your homemade coffee with you.
2. Don’t try to keep up with the Joneses. Because the Joneses could be in debt. Try not to compare yourself to others financially. Yes, there are many people that will have more money than you but there are also people that spend a lot of money and aren’t saving for retirement. It is surprising how many people in their 40s do not have savings. Be your own benchmark and set your own goals.
3. Never pay full price for anything. Going out on the weekend? Take advantage of all the parks and free events your city has to offer. Go to local museums, walk hiking trails, and get a library card for free reading material. Check out the theaters near you; most have discount days and museums often have free admission days.
4. Make a budget and stick to it. Don’t forget to include all fixed expenses, discretionary expenses, and unexpected expenses (car maintenance, medical, etc). In the “olden days” the best way to stay on budget was to use cash. People would withdraw cash on Monday and use it for the week and when it ran out, oh well! These days I recognize that you are card dependent. Consider having a separate account that you transfer daily living money corresponding to when you get paid. For example, transfer $300 every other Friday and use this money as “fun money” for trips, eating out, or a concert. This will help you limit your discretionary spending.
5. Learn what IRAs and 401ks are. If you have a job, make sure you understand what a Traditional IRA, Roth IRA, and 401k are. Find out what percentage of your pay you can contribute to the account, and if your employer matches contributions. My advice is to at least contribute the amount they will match. Also, do your own tax return while it is still simple so you understand the basic tax rules.
6. If you’re a newlywed, live on one partner’s paycheck. Try living on one paycheck and save the other one for a down payment on a house. Make sure you are on the same page financially. Marriages can become stressful when two people have different spending philosophies. Make sure you discuss and determine your priorities.
7. If you’re a new parent, figure out a college savings plan. Is sending your child to college a priority and do you intend to pay for the tuition? Will you let your child pick any college he or she wants to go to? Costs of a college education can vary extremely. Make sure you can realistically save enough for your child’s college tuition.
8. Don’t expect an inheritance. Lastly (this one is my favorite), don’t expect to borrow or inherit money. Yes, we would loan you money, if we are able to and a true emergency occurs, but we will not loan you money if you are living beyond your means. We didn’t buy the fancy coffee and cars when we were younger, and we intend to enjoy our life now that we’ve put you through college. Now that we are enjoying life after kids, there might not be any money left after we are gone!