5 things I learned in 18 months of personal finance reporting

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There is no shortage of great personal finance advice out there. The problem is figuring out whether or not it applies to you.

“Personal finance is personal before financial,” Talaat McNeely told me during an interview earlier this year. McNeely is a co-founder of the site His de Ella and Her Money, which he runs with her wife, Tai. I’ve found this idea to be a helpful way to think about his finances and his life in general.

There is no single money tip or trick that will instantly change your life. But some principles and concepts can put you on the path to achieving your goals. You’ll just need to find a way to apply them to your unique situation.

Here are the most powerful lessons I learned during my time as a personal finance reporter and how I applied them to my life. These tools and concepts helped my wife and I set aside over $20,000 to pay off student loans (once interest resumes next year), build our emergency fund, and feel less stressed about our financial future.

A good budget should manage not only your expenses but also your emotional relationship with money.

5 things I learned as a personal finance reporter

Since launching NextAdvisor in the midst of the pandemic, our top priority has been to share actionable advice that readers can immediately use in their daily lives. In the course of fulfilling this mission, we have learned a great deal about ourselves.

Here are four personal finance concepts that my wife and I have incorporated into our daily approach to finances, plus a strategy we plan to use when we’re ready to buy a home.

1. Budgeting is more than just managing money

For years, my budget was a homemade spreadsheet that I updated sporadically in hopes of becoming a young Warren Buffet. It rarely worked as well as I wanted it to. In theory, my budget should have made me the ultimate saver. But what often happened was that I updated it once a month and discovered that I had spent too much on eating out. And it wasn’t helping me feel less stressed about money.

One of the first stories I wrote for NextAdvisor was about creating a budget, and that’s where I discovered zero-based budgeting (ZBB). Once my wife and I started zero-based budgeting, we not only started saving more, but we also started feeling less worried about money. In my experience, a good budget should manage not only your expenses but also your emotional relationship with money.

Piper after her surgery. She hated the cone of shame, so we put her in a baby onesie.Jason Stauffer/Getty Images

With ZBB, every dollar you put in has a purpose. We allocate funds to pay rent, cell phone and other expenses. But we also allocate money for more than just our current bills. This strategy helped us pay off student loans sooner than we expected.

ZBB also helped us create an emergency fund for the first time in my life. When the cat needed $2,000 emergency surgery last summer, we already had that money set aside. Had we not had an emergency fund, this surprise cost would have been a setback for other goals. Since this money was already set aside, it did not negatively affect our other financial obligations.

We’ve been using the You Need a Budget (YNAB) zero-based budgeting app for almost a year and a half, and we love it. This app has effectively turned our credit cards into debit cards, which is important because I’m a travel credit card addict. When I enter a credit card purchase into the YNAB app, the funds are immediately allocated to pay for that card. So even though I won’t actually pay the credit card bill for 30 days, the budget tells me there’s no money left to spend.

How to find a budgeting strategy that works for you

If you want to try zero-based budgeting for yourself, I think YNAB is a great place to start. It is important to note that it is not free. But there are many free or cheap ZBB templates available. And ZBB is not the only budgeting method that works. As you explore different approaches to budgeting, focus on why you want a budget in the first place. A budget can help reduce financial stress and get you closer to your goals without turning you into Ebenezer Scrooge.

2. Prioritize income over expenses

There’s a limited number of Starbucks lattes you can cut out of your budget, but there’s an unlimited number of ways to make money.

I’ve talked to people who have paid off their mortgage in less than six years and conquered six-figure amounts of debt. A common thread running through these success stories is that they find ways to make more money. They start side activities, businesses or find better paying jobs. Having a budget that works for you is still the first step. But if you don’t have enough net income after expenses, saving for anything else will be a struggle.

My wife and I are expecting our first child in 2022 and it is as important to us as ever to increase our household income. My wife is considering moving from freelancing to a full-time job, which would provide her with a more stable income. From there, we could explore other independent or parallel opportunities.

How to increase your income

Starting a side hustle may not be as challenging as you think. Chances are you already have interests and talents that you could use or develop to increase your income. A great piece of advice Marc Russell shared with me was to repurpose skills from his current job into a side hustle. Russell is the creator of the Betterwallet personal finance Instagram account. “As long as there is no conflict of interest with your current job, you can go out and create your own thing and get paid for it,” he said in a previous NextAdvisor story.

3. Negotiating can be as simple as asking

The idea of ​​negotiating has always terrified me. My idea of ​​a good negotiator has always been a former Navy SEAL or professional athlete, someone who is in control, confident and used to winning. In reality, negotiating is often as simple as asking for what you want. Crafting a good offer sometimes includes offering something of value in return.

I have never asked for much of anything, much less a discount on my housing costs. I was recently looking to move into a new apartment on a short term 3 month lease. I emailed my current property managers to ask about two ground floor units that I knew were vacant. I asked if any of the units would be available for a short-term lease and gave them valuable information, reminding them that the apartment had been vacant for over a year. Then I offered to pay three months in advance if they reduced the rent.

I am now paying over $150 less a month and my landlord is $4,000 more than before he asked for what he wanted.

How to trade more often

Any negotiation is better than no negotiation. Find an approach that can help you relax and feel more comfortable. Try making an indirect request and see if that’s easier for you. Instead of going out and saying you want a raise, ask your manager something like “what have people in my position done in the past to help raise your salary?” At least start the conversation. You will never get something if you don’t ask for it in the first place.

4. Be patient and consistent. change takes time

Changing the trajectory of your finances takes time.

That can be daunting to read. Everywhere you look, there’s headline after headline highlighting the youngest millionaire or someone who went from insurmountable debt to financial freedom in less time than it took to read his best-selling book.

Life is a marathon, but we only see the last few hundred meters of other people’s victories. Almost all financial achievements are preceded by a long period of learning and development. Whether it’s learning to code before becoming a tech entrepreneur or saving for a down payment on a house, meaningful change takes time.

If you can only take small steps, keep taking small steps. It can be hard to see how fast others seem to be moving. What’s not obvious is how long it took them to develop the speed you’re seeing. Understanding how long it takes to make significant improvements is the foundation for making positive financial decisions.

How to use time to your advantage

The best way to make time work for you is to start now. Start small, start slow, start not perfect. Then your job is to continue what you started, no matter how slowly you want to, and learn and make adjustments along the way.

5. Potential homeowners: ask about a zero-cost mortgage

When reporting on mortgages, the most overlooked strategy I’ve found to lower the cost of your mortgage is to apply for credit from the lender in exchange for a higher interest rate. In this situation, the credits would be used to cover the loan fee portion of your closing costs. A zero-cost mortgage means you’ll pay much less out of pocket each time you buy a home or refinance.

Here’s why I plan to get a zero-cost loan:

  • By reducing the initial cost I will have more liquidity.
  • What you would have spent on upfront closing costs can be used to pay off your mortgage balance, invest in a retirement fund, or set aside for unplanned home repairs.
  • If I moved or refinanced six times in the next 30 years, I would pay closing costs (3%-6% of the loan) six times. So for me, taking the highest interest rate with a zero cost loan is cheaper because our future plans are not set in stone.

When looking for lenders, ask if they have a no-cost loan option. Compare your options and see which one makes the most sense for you. In my experience, the zero cost mortgage is not as common or as advertised. Also, the zero-cost mortgage is different from a mortgage with no closing cost. A no closing cost mortgage is when closing costs are included in the total loan balance.

How to choose the right mortgage for you

Any time you get a home loan, you want to make sure you understand all of your options. Ask lots of questions and work with a professional who will help you understand your options, rather than just someone who gives you “the answer.” In my experience, most borrowers are too concerned about the mortgage rate to overlook closing costs. It’s easy to overlook interest and closing costs because they can be added to your loan balance, but you’re still paying even if you’re not paying out of pocket when you close.

Bottom line

The practices above have given me the patience I needed to establish financial habits that will last a lifetime. They worked for me. But that doesn’t mean you should take the same approach. At the very least, use these concepts to start thinking about how you can approach your finances differently or to start asking questions you haven’t considered before. For more information, check out this library of resources on the NextAdvisor savings page.

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