I’m not good with money. I’m not Bad With Money (like this excellent podcast), but I ain’t ever been great at it. My parents always took care of everything, and we were well-off (at least from what I understood growing up) so money was sort of like a thing that was there but you never needed to worry or talk about it.
As I got into my 30s though and started to get that it was JUST ME and it might always be JUST ME (aka no rich billionaire was coming to marry me -- I think this economic anxiety is a real one that single people in their 30s start feeling) I was like, I really have got to figure this out. This was hard to do when in your 30s because of one huge obstacle: SHAME. I was like, I AM TOO OLD TO NOT KNOW HOW TO DO THIS STUFF. So I just will never ask any questions or tell anybody I DON’T UNDERSTAND EVEN SUZE ORMAN WHO HAS MADE HER CAREER EXPLAINING TIPS SO BASIC THAT O MAGAZINE PEOPLE UNDERSTAND THEM. So I just went on for a bit pretending that money wasn’t real and everything was fine.
To be fair I was never in a super dire situation. My parents paid for undergraduate college (at a state school; when I got into a certain New Hampshire liberal ivy I really wanted to go to they were like nuh uh we’ll pay for the state school; they are known as Good with Money, good call mom and dad); I had a scholarship for graduate school; and I paid off debts related to my costs of living during graduate school several years ago. I never keep credit card debt because it terrifies me. And if I’ve ever needed help, my parents, again, have ALWAYS been there as a cushion, so I’ve never truly worried for it, and I am extraordinarily lucky in so many ways.
Except the way in which, as I mentioned, I was getting old and I was like I guess I’m probably not going to work until I’m 87 and my parents won’t always be around so maybe I should look into this retirement thing… ? This is a true story that really will show you how bad with money I was until a few years ago: I DISCOVERED A 401K I NEVER EVEN KNEW I HAD!!! My first job out of college I had a 401K, I literally didn’t know what that was or that I was putting money into it, and a few years ago I discovered it! Part of me was like YAY FREE MONEY and part of me was like :horrified face emoji: Catherine you have got to take control of these things and start educating yourself.
So I did. I’m doing fine now - I’m not going to retire a millionaire - but I feel more comfortable and knowledgable about my situation than I did five years ago. Here’s how I got there and also some things I wish I’d known along the way. Some of this may be wrong and most of it is certainly very basic, but this isn’t for the money experts out there; it’s for those like me who were like WHERE DO I EVEN START. If advice is bad or wrong feel free to tell me in the comments. Like I said, I’m not great with money.
(Note: This isn’t a blog post about how to spend less, by the way. A lot of shame and emotional issues are tied up in money for a lot of people and they have trouble stopping spending beyond their means. That is absolutely something worth talking about and finding help for, but I don’t know how to do that. I also don’t know how to like, coupon, or be thrifty. This is just a blog post about basic financial steps you should be taking as an adult that took me way too long to learn.)
#1: ALWAYS NEGOTIATE SALARIES
I used to think I was going to save more money and be better off financially if I could like, stop going to Starbucks. Now you shouldn’t be spending hundreds of dollars a month on lattes but the best way you are going to make more money is ASK FOR MORE MONEY. If you don’t negotiate job offers you are missing out on untold thousands or tens of thousands of dollars, and then it impacts every job you have down the line because, though unfairly, most jobs base what you will make at your new job at your last salary. (This is dumb because you should just be paid whatever the job is worth and I think some states are making demanding a salary history of past jobs illegal, which is good.) Anyways, ask for that raise. My biggest jumps in net income came from when I screwed up my courage and blurted out asks for raises that to me, at the time, seemed incomprehensibly large. I didn’t always get what I asked for by the way, but I got more. More income = being able to save more for retirement, by the way, NOT SPEND MORE.
#2: SELF EDUCATE WITH A LOVING GROUP OF PEOPLE
Like I said, my biggest obstacle to being better at money was the enormous amount of shame I felt that I, a smart, educated woman in her 30s, knew basically nothing about money. I think this is what prevents a lot of people from asking more (see again the newish and good Bad With Money podcast). Oh like I knew how much I made, I knew I shouldn’t spend beyond that; but I didn’t know what else to do with it. I wasn’t poor, but I wasn’t investing, or doing enough for retirement. So in my friend Slack channel (which I’ve raved about here) I created a money channel where I ask my seemingly incredibly stupid questions about money to my loving and kind group of friends who know way more about money who are also very good at hiding their disdain. Find that group in your life and ask those people all the questions about what you should be doing. They’re your friends; they will want to help you not die in a gutter.
#3: GAIN A BASIC UNDERSTANDING OF WHAT YOU SPEND YOUR MONEY ON AND HOW MUCH YOU HAVE
I used mint.com for this. It will not steal your money. For me it was enormously helpful in creating a budget but mostly understanding like… where does all my money go? Some of it was horrifying. A lot was going to amazon.com, on what I didn’t even know (damn you Amazon Prime) so I made a rule of no more mindless amazon.com purchasing. A lot was going to booze, like a horrifying amount, so that made me more conscious of spending there. Mostly I understood how much I was spending in a month, and it helped me understand that I wasn’t just spending money abstractly - I was spending a lot on certain things I didn’t realize, which then helped me think twice the next time I was out on a Saturday night spending $75 on drinks.
I also like Mint because it serves as a single dashboard showing me all of my accounts - bank accounts, investment accounts, savings accounts, 401ks, whatever.
#4: PAY OFF DEBT FIRST, THEN SAVE
From what I understand about money, you should work actively to pay off all your debt first before doing much saving. I have to admit if you have a lot of debt, I don’t have good advice to offer. I’ve never had much debt nor big spending problems that created a lot of debt for me. But I did work to pay off my student loans, and then moved into the next tip…
#5: CREATE AN EMERGENCY SAVINGS FUND
If you’re a single-income household I read you should have six months saved of what you spend every month. I do this using Capital One 360 - I figured out what my emergency fund should be based on my current monthly spending, figured out how much I could afford to put towards that every month, then set up an auto-withdrawal that would take that amount out of my paycheck every month. I like using Capital One 360 because it’s relatively liquid (a term which I had to look up - it means easily accessible, so basically you can withdraw as much as you need at any point right away) but it’s not directly in my bank so I can’t get at it TOO easily. I recently completed my emergency fund and it will sit there happily until I never have to use it because I will have no emergencies in life ever or ever get laid off. Maybe I should be doing something different with it? Let me know if so.
#6: MAX OUT YOUR 401K CONTRIBUTION
Now I know this is the most basic tip but if you were anything like me you didn’t know what maxing out your 401k meant; you didn’t EVEN KNOW WHAT A 401K WAS. So, basic:
A 401k (stole this from google) is a retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes aren't paid until the money is withdrawn from the account.
Maxing out your or 401k simply means that you contribute the maximum amount allowed in a given year. Because of laws, or whatever, you can only contribute 18,000 a year to your 401k (I think this amount changes slightly year to year depending on said mysterious laws).
Now, a lot of people can’t contribute that much money which is fine and normal. What you can do is contribute the necessary percentage of your salary towards your 401k to trigger a matching amount from your employer. Yes, if your work has a 401k and they do matching, they are basically giving you free money. For example, my matching amount is 6%, and then my employer contributes 3.5%. FREE MONEY!
(I currently put in 8% of my paycheck to my 401k, btw. I have friends who put in 9 or 10%. But I would never put in below 6% since that’s the matching amount set by company.)
I never understood the paperwork around this but your 401k plan should have a website where you can figure out how to log in and adjust the amount yourself that’s taken out every paycheck. Talk to your kind HR person if you can’t figure this out. Remember: forget the shame. Forget the embarrassment. Just walk in and be like “I have to admit I know nothing about my 401k and I am trying to get better. Could you walk me through how it works like I am a stupid baby?” They will take pity on you, I promise. Nobody wants to hurt stupid babies.
The most confusing part about 401ks I found for me was like… where does that money GO? What is DONE with it? How do you put in some money and it MAKES MORE MONEY? Well, I’m still not super clear on this, but from what I understand the money you put into a 401k goes into funds that are managed by your 401k plan and invested in the stock market. I was like, okay - what funds should I pick, then? I ain’t knowing nothing about the stock market. What friends have told me is that the Vanguard Target Retirement funds are good ones to pick for your 401k. They are kind of a set it and forget it approach towards the investment of your 401k money. Say you calculate you want to retire in 2045 - pick the vanguard target retirement 2045 fund.
There’s probably more to be said here but honestly I didn’t care, I just wanted the basics and to be told what to do, and not be flooded with a huge amount of choices.
#7: SET UP A ROTH IRA
So say you paid off debt, are contributing a good amount towards your 401k, and are contributing each month to an emergency savings fund. I think what you’re supposed to do next (at least, what I did) is set up a Roth IRA. Fuck money, by the way. Like, WHAT DOES ROTH IRA MEAN? I hate the language around money and finances. I think it’s just stupid lingo that doesn’t make any sense and only serves to obfuscate true meanings so people with the secret lingo knowledge can amass more power.
In this case this is what a Roth IRA is: an individual retirement account allowing a person to set aside after-tax income up to a specified amount each year. See, the IRA stands for Individual Retirement Account. I never really wondered what Roth meant until now so I just looked it up. It’s some white dude senator who made the legislation creating this individual retirement account. I mean, I guess good job and thank you Mr Roth - from what I understand a savings vehicle like this did not exist for people who did not have a company one. But like, can we just call it Individual Retirement Account?
This made me look up what the hell 401k means, which I literally never thought to ask until this moment, and that’s also stupid. 401(k) plans, named for the section of the tax code that governs them, arose during the 1980s as a supplement to pensions.
LOL OK. Look, think of it like this: 401k is work retirement account. Roth IRA is your own personal retirement account. We need these things because nobody gives pensions anymore. Most employers used to offer pension funds. Pension funds were managed by the employer and they paid out a steady income over the course of the retirement. We don’t get those no more, so now we need 401ks and Roth IRAs.
ANYWAYS TANGENT. For mysterious law and tax reasons, you can only contribute a certain amount each year to your Roth IRA. For individuals that are under 50 years old the limit on contributions to a Roth IRA is $5,500 if you make less than a certain amount of income and if you’re single or married, but overall it depends on how much you make. Here’s a list.
How I did it? I went to vanguard.com, opened a Roth IRA, picked one of their target retirement funds, and contribute as much as I can each month so that my yearly total doesn’t exceed what my income level allows. Also my friend James from Slack made me promise to explain there are more than one kind of IRA and a Roth IRA is just one kind and also something about tax exemptions but you’ll have to go ask him.
I think that's all I've got. What I'm struggling with now is what to do with money now that I've maxed out my Roth IRA and 401k and emergency fund. I have some other Vanguard retirement accounts set up as well as a USAA mutual fund but I'm not sure if those are the best vehicles for money for retirement. If anybody has any ideas, hit me up, I'm a dumb baby who doesn't know much about money but still wants to learn.