How to Be Financially Successful in Your 20’s

Weeks 2 and 3 of the Live Richer Challenge were full of tasks that I had already completed after applying lessons from previous readings, which is a good thing. The Budgetnista’s in line with other financial planners.

This week (Week 4) is all about credit; and the next, investing. I’m excited for the investment portion for sure. That topic often scares me. The Budgetnista has a way of breaking down tough concepts into simple measures so most can understand it. That’s great for her target audience of young, black women.

The main points I took away from Weeks 2 and 3 were the importance of automation and notes from this free ebook The Budgetnista contributed to on MoneyTips.com — The Millennial Next Door [Revealed]: How To Be Financially Successful in Your 20s. The survey answers from other 20-somethings helped me see where I am among my peers.

• The majority (55%) earn from $25,000 to $75,000
• 63% have less than $25,000 in assets
• 30% say student debt has impacted their ability to be financially independent or successful
• 87% of successful millennials have set financial goals and are on track to meet them at least to some extent
• 85% successful millennials keep budgets
• On average, successful milleninals save 21% of what they earn
• 91% say they are financially literate

The top 5 financial concerns are:

1. Saving enough to live comfortably in retirement (47%)
2. Earning enough to afford the lifestyle I/we want to live in the future (46%)
3. Pay off student loans (35%)
4. Living within my/our means (34%)
5. Maintaining my/our current lifestyle in the event I lost my job and/or can’t find work (29%)

The biggest financial missteps so far include:

1. Taking on too much consumer debt (23%)
2. Spending frivolous (22%)
3. Racking up college-related debt (19%)
4. Making investment decisions they later regretted (8%)
5. Not saving enough (5%)

The e-book featured great tidbits from financial planners and bloggers.

Words On Budgeting

Matt Becker said he understood that budgeting isn’t something that works for everyone.

“I think it sets people up for failure by putting the focus on spending less instead of the real goal of using your money purposefully to get more of the things that make you happy. Instead, I encourage my clients to focus on three things:

1. Automate savings
2. Tracking spending (so you can make informed decisions)
3. Creating good habits that align their daily lives with their long-term goals”

Words On Debt

“The biggest financial misstep I see millennials make is taking on large amounts of unnecessary debt for things like home, vehicles, or college. Many of these same millennials would say they place a high value on flexibility and freedom, when in reality they are getting neither. Debt almost always limits flexibility and freedom.” — Ben Wacek, CFP

Words On Setting Goals

“While finance is very mathematical, it’s also very emotional. People tried to accomplish their goals faster when they’re tied to something that’s exciting to them.” — J. Money

Words On Investing

“Just get started. Many people do tons of research and are victims of paralysis by analysis. Trying to decide whether they should invest into load or no-load mutual funds, ETFs or dividend-paying stocks. Take a small amount and invest into something. Even if it ends up being a crummy investment you’ll learn a ton by going through the motions versus doing more and more research.” —Jeff Rose, CFP

Two Checking Accounts Keep Bills and Spending In Check

Has anyone tried the two-checking account system? This is when you use one for bills and one for spending. It’s no different than earmarking savings accounts for different goals —vacation, car maintenance, emergency fund.

On Day 11, Tiffany “The Budgenista” Aliche prompted us to define our dollars by opening multiple accounts that day. Otherwise, you’ll have “gumbo money,” she said.

“When you have all of your money in one pot, you never know how what’s really happening. How much of this is for saving? How much for bills? How much for savings?”

Tiffany’s task couldn’t have come at a better time. While reading her prompt, I remembered that just minutes before I was calculating how much money I’d have left in my checking account after paying bills. It can be exhausting to think: “When this payment goes through, will I have enough money for the oil change, the hair appointment, gas, etc.?”

I already have multiple checking accounts (Big Bank, credit union and online bank), but two are tied to savings accounts that I don’t want to touch. I’m afraid if I start using those two checking accounts, then I’ll start transferring money from my savings. Don’t want that! The debit cards are out of sight and out of mind for that reason.

My main option is to open another checking account at the Big Bank. However, I’d need to directly deposit $250 each month or have a large average daily balance of more than $1,000 to avoid a $12 monthly fee. Decisions, decisions.

When you have all of your money in one pot, you never know how what’s really happening. How much of this is for saving? How much for bills? How much for savings? — Tiffany “The Budgetnista” Aliche

Of course, I looked to the great wide Internet to find out how other people are using the two-checking account system for paying bills and discretionary spending. Some folks have it all figured out.

Here are some reasons to use two checking accounts for budgeting:

1. You don’t worry about dipping into your bill money for discretionary spending.
2. You can automate all of your bills and spend less time managing your money. You know the money will be there, so you can put your finances on autopilot.
3. If forces you to be more frugal and save. You will be motivated to save as the money in your “Spending” checking account grows. Who wants to see it depleted all the time? Because the amount of money in the “Spending” account is finite (and not nebulous) and I can see exactly what’s left in the tank, then I’ll be forced to really think about what I’m spending.
4. No overdrafts.

Great reasons, right? This system could really help me clear my mind and separate money for different purposes so spending doesn’t affect paying the bills.

LIVE RICHER Challenge: Day 8 and Day 9

Tiffany “The Budgetnista” Aliche graciously allowed the LIVE RICHER Challenge to read Day One of her book, “The One-Week Budget”, to start Week Two of about budgeting and saving. I thoroughly enjoyed it.

In the intro, she said, “There is a magic about money.” When money is not planned for, it disappears. When it’s well-documented and used wisely, it inexplicably multiplies for the for the skilled handler.

DING! DING! DING!

It’s not anything that I’ve learned before, but I loved how she put it.

Throughout the chapter, she described how her clients faltered financially. Until they wrote down their expenses in black and white, they didn’t understand the error of their ways.

So we also were tasked with creating “The Money List” with all of our expenses. Then we’d subtract it from our take-home pay. I’m going to run over my December numbers to see how I fared. Oh, boy!

—

Side note: I was talking to a gentleman caller yesterday, and he was talking about his goals for this year and the next. He traded in his gorgeous luxury car for a Toyota Camry to save himself $300 a month. I exclaimed, “Look at you being responsible, being a man!” I was so proud of him for making that decision. He said he wanted that car for a long, but after he got it, it lost it’s luster after a while. It reminded me of a few male financial experts I read. They, too, had to confront that monthly payment and their pride. Then they gave up the car to get ahead financially. It’s great to have met someone with a similar financial mindset.

LIVE RICHER Challenge: Week One (Changing Your Money Mindset)

Week One of the LIVE RICHER Challenges was all about changing your money mindset.

The tasks included setting goals and denoting your needs, wants and loves. Those were my favorite of the daily tasks that week. Tiffany “The Budgetnista” Aliche said needs = purpose. and loves = passion.

Need it? > Love it? > Like it? > Want it?

“If you don’t need it, or love it, then you should leave it,” she wrote. “Spending money on likes or wants, means you’ll have less money for purchases that truly improve the quality of your life.”

She makes it sound so simple, right?

She prompted up to mentally list our needs. Then write down two loves and commit to them for the next six months. My loves — the things I would do if had Oprah’s bank account — travel, exercising and volunteering. Many of the women used the same list.

Spending money on likes or wants, means you’ll have less money for purchases that truly improve the quality of your life.

As part of committing myself to travel, I’ll complete my goal of renewing my passport. I’ll continue to exercise and volunteer to keep me physically and spiritually healthy. Things have recently ractheted up in both departments.

My 29th birthday gift to me: No more credit card debt

A co-worker read a poignant quote yesterday.

Do one thing every day that scares you. – Eleanor Roosevelt

Well, I did something very scary today. I am trying to transfer $3,000 from two credit cards onto one with a 0-percent interest rate for 15 months. Meaning that I’ll have to stick to my Debt Dash/Snowball plan and budget to the T in order to pay this off by March 2016.

I’M FREAKING OUT!!!

Why did I agree to transfer that much?! Why didn’t I give myself breathing room and put $2,500 on the card? That $500 makes a difference.

According to my plan, I can pay off the transfer by February 2016. That’s just a month ahead of the introductory fee and the month of my 29th birthday.

So my 27-year-old self is making a pledge to my 29-year-old self that I will not burden her with high-interest credit card debt. She will most likely have student loan debt. We’ll continue the snowball to get rid of that eventually.

But in 14 months, I want to be out of this hole.

It takes a lot of will, discipline, courage and help to slay the debt monster. But it can be done. – Dave Ramsey

I will continue to freelance and use half of that money for debt. That will expedite the process.

I just received my first payment of 2015 for a freelance piece and was unsure of what to do with it. Perhaps, I’d try the three savings buckets system and split it equally for:

1. emergency savings
2. save to spend
3. retirement

But, no. I’ve got to use part of this freelance income to hit this balance transfer. Every little bit counts. It’s not cute to continue to be the slave to the lender.

The rich rule over the poor, and the borrower is slave to the lender. – Proverbs 22:7

I’ve scared myself straight. I must make sacrifices to achieve this goal. My 29-year-old self deserves to be free of credit card debt.

What to expect when doing a credit balance transfer

I’ve heard of balance transfers for a while now, but have been wary of doing one. This basically allows you to get a new credit card to pay off the old one. The key is getting a new card with a low- or zero-percent introductory interest rate over those months, for example 6 or 12 months, so you’re putting money toward your balance, not the pesky interest. It can help you get out of debt quicker and save money overall.

Strategize Before Getting a Balance Transfer

While listening to Ready For Zero’s MoneyBuzz podcast, a co-hostess talked about how she once got a balance transfer card but didn’t create a strategy to pay off her balance before the introductory period expired. She got hit by interest twice. Boom!

Years later, she ended up using another balance transfer to pay off that debt within the allotted time period. The plan made the difference. She knew exactly how much to pay each month to avoid interest. Hearing her success story made me seriously consider doing a balance transfer for the first time.

What To Consider When Selecting A Balance Transfer Card

• Purchase Annual Percentage Rate (APR) | Of course, you hope to qualify for a card at 0 percent.
• Balance transfer APR | 0 percent, please!
• The expiration date for the teaser rate | It could be 6 months, 12 months or longer. You don’t want to get caught up and not pay your balance within 6 months. You have to be careful. After the 6 or 12 months are up, the interest rate jumps up significantly. A card I considered chose between 12.99% and 22.99% depending on the card applicant’s creditworthiness. Obviously, you don’t want to have a balance and get hit with those high interest rates…AGAIN.
• Balance transfer fee | Some cards charge a percentage, for example 3 percent, of the balance you wish to transfer to the new card. So you would be charged a balance transfer fee of $3 for a card with a $100 balance.

While looking around, I noticed that you can’t get do a balance transfer within the same company. So example, you can’t dump debt from one Company A card to a second Company A card.

I ended up getting a card that offered 0 percent interest on new purchases AND balance transfers for the first 15 billing cycles of my account. Also, there was no fee for balance transfers within the first 60 days of opening the account. I qualified for the lowest APR after the 15-month teaser period. Thanks, good credit score! The company approved a full transfers from one card and a partial transfer from another. Using this balance transfer calculator, I estimated that I could save $762 in interest over the duration of the promotion. After the promotional period, I could save about $19 each month.

I called the company to better understand how this will all work.

• Balance transfers help consolidate payments. Depending on your situation, you can make one payment for two cards.
• My old companies will receive payments from the new cards, so they won’t necessarily know that I made a balance transfer. It’s as if I paid the cards in full.
• The balance transfer could have a negative impact on my credit score temporarily.

How Balance Transfers Affect Your Credit Score

If you plan to apply for credit like a loan or mortgage in the near future, then some folks advise against doing a balance transfer. Why? A balance transfer could negatively impact my credit score in three ways.

1. Debt utilization (30 percent of my FICO score) | I’ll basically max out the balance transfer card. The rule of thumb is to use 30 percent or less of a card’s credit limit. That’s not good.
2. Opening new credit (10 percent of my FICO score) | Opening new accounts could lower my score. Lenders don’t want to see that you apply for new credit often. That’s risky.
3. Length of credit history (10 percent of my FICO score) | The longer I’ve had a card, the better.

It’s a good thing I don’t plan on applying for anything soon.

Looking Forward

I’m going to continue to use the Debt Dash/snowball method to pay down these two cards using the balance transfer. It’s great that my cash will go toward the balance instead of interest. Cheers to the interest-free future!

LIVE RICHER Challenge: Day 1 and Day 2

The first week of January has been interesting. I’ve been making money moves.

On Friday the 2nd, I sat down and revisited the budget format from Michelle Singletary’s 21-Day Financial Fast. Budgeting is scary! OK, maybe not. I was trying to give every dollar a job and scared myself by almost getting down to $0, which wasn’t my intent. The zero-based budget is when income minus outgo equals zero. So in comes $3,000, and out goes $3,000 to saving, investing, paying bills, buying groceries, etc. I like having a little wiggle room, which is probably why I’m adverse to budgeting. I am going to run up my spending tab at the end of the month to see how I stack up to my budget. Should be interesting.

Live Rich(er), Die Trying

On Monday, I started in the 36-day LIVE RICHER Challenge started by Tiffany “The Budgetnista” Aliche. Each day the participants must complete a task. The daily tasks will focus on the money theme of the week. The weekly themes are:

• Week 1: Money Mindset
• Week 2: Budgeting & Saving
• Week 3: Debt
• Week 4: Credit
• Week 5: Investing & Insurance
• Final Day: LIVE RICHER

Day One was about setting three main financial goals and sharing them with the rest of the Live Richer community or an accountability partner. Good thing I had already thought of mine. It was so great seeing all of the goals from fellow black women. They aim to do everything including raising their credit score by a certain number of points, save for a trip to Brazil, save for emergencies, increase their income and get out of debt. We have so much in common.

Today’s prompt prompted us to read “Seven Cures for a Lean Purse” in The Richest Man in Babylon book by George Clason. Then The Budgetnista requested that we share our favorite “cure” with the community, and how we’d use this “cure” to grow wealth.

I read the seven cures parable over my lunch break and was mesmerized. This book was first published in 1926. All of these principles for managing your finances still ring true. Amazing!

Trent Hamm explained the parable in The Simple Dollar (I’m too lazy to put in in my own words): “The tale “Seven Cures for a Lean Purse” relates a story about Arkad, the titular richest man in Babylon. He is requested by the king to teach a class to anyone who wishes to attend on the methods he used to build his wealth. He divides this class across seven days, with each day focusing on a particular method for saving money.”

Here are the seven principles:

1. Start thy purse to fattening: Save 10 percent of your income.
2. Control thy expenditures:  Budget, budget, budget! “Budget thy expenses that thou mayest have coins to pay for thy necessities, to pay for thy enjoyments and to gratify thy worthwhile desires without spending more than nine-tenths of thy earnings.”
3. Make thy gold multiply: Invest. “Put each coin to laboring that it may reproduce its kind even as the flocks of the field and help bring to thee income, a stream of wealth that shall flow constantly into thy purse.”
4. Guard thy treasures from loss: Invest wisely. “Guard thy treasure from loss by investing only where thy principal is safe, where it may be reclaimed if desirable, and where thou will not fail to collect a fair rental. Consult with wise men. Secure the advice of those experienced in the profitable handling of gold. Let their wisdom protect thy treasure from unsafe investments.”
5. Make of thy dwelling a profitable investment. Own your own home. “…I recommend that every man own the roof that sheltereth him and his.”
6. Insure a future income. Get insurance. “He should plan certain investments or provision that may endure safely for many years, yet will be available when the time arrives which he has so wisely anticipated. … Provide for the needs of thy growing age and the protection of thy family.”
7. Increase thy ability to earn. Make more money. “The more of wisdom we know, the more we may earn. …cultivate thy own powers, to study and become wiser, to become more skillful, to so act as to respect thyself.”

This story is chock full of gems.

Arkad on NOT over thinking it:

Deride not what I say because of its simplicity. Truth is always simple.

Arkad on knowing what’s important:

Which desirest thou the most? Is it the gratification of thy desires of each day, a jewel, a bit of finer, better raiment, more food; things quickly gone and forgotten? Or is it substantial belongings, gold, lands, herds, merchandise, income-bringing investments? The coins thou takest from thy purse bring the first. The coins thou leavest within it will bring the latter.

Arkad on debt:

He must pay his debts with all the promptness within his power, not purchasing that for which he is unable to pay.

Arkad on giving back:

He mush have compassion upon those who are injured and smitten by misfortune and aid them within reasonable limits. He must do deeds of thoughfulness to those dear to him.

Arkad on setting goals:

Preceding accomplishment must be desire. Thy desires must be strong and definite. General desires are weak longings. For a man to wish to be rich is of little purpose. For a man to desire five pieces of gold is a tangible desire which he can press to fulfillment.

Arkad on increasing earning potential and lifelong learning:

As a man perfecteth himself in his calling even so doth his ability to earn income.

Arkad on wants versus desires:

I say to you that just as weeds grow in a field wherever the farmer leaves space for their roots , even so freely do desires grow in men whenever there is a possibility of their being gratified. Thy desires are a multitude and those that thou mayest gratify are but few.

SEEKING COUNSEL

After work, I saw my financial advisor and discussed my current outlook and goals. He lauded me on the decisions I’d made thus far and the fact that I paid off four small debts in 2014 and had a clear plan to rid myself of more debt. For my age, he said, I’m doing fine. Some folks have $30,000 in credit card debt, he said. Having a mindset to get rid of it as soon as possible is commendable.

The meeting was a great way to end the day. The future looks bright as long as I stick to the plan.

New Year’s Resolutions: The Importance of Setting Financial Goals

It’s amazing what a difference a year makes. On New Year’s Eve last night, I was in the same place—my apartment. However, I was in a different mindset. Earlier in the day, one of my friends came by, and we completed our vision boards. This was such a fun exercise. It was my first foray in vision boards. I dedicated a section to fiscal fitness. It features a hand grabbing cash, a cute piggy bank and positive sayings to remind of me of goals for the year (and the rest of my life, for that matter) such as:

• “Your money. In your control.”
• “Take control of your retirement”
• “Cut costs.”
• “Add a little richness to your life without spending a fortune.”

For weeks, I had been trying to get perspective on my money goals for 2015. One day, I looked back at my Debt Dash Plan created in January 2014 during the 21-Day Financial Fast. Four small debts are paid in full. Awesome! I had unknowingly completed non-fiscal goals, including dating more (well, at all, but that’s for a different blog), cooking new recipes, reading more and so on. I wrote down all of those goals earlier in the year, but misplaced the paper and wasn’t tracking them. The practice of simply writing them down must have helped manifest them, though. This year, I want to track my progress.

So many of us are making New Year’s resolutions. According to a Fidelity survey, the top three financial resolutions for four years now are:

• Saving more (55 percent). The median commitment is an additional $200 a month.
• Paying off debt (20 percent)
• Spending less (17 percent)

The Fidelity survey also found a correlation between expressing a financial goal and improving one’s financial life. About half (51-percent) of those who made a money resolution last year said they are now “better off financially,” compared to just 38 percent of those who didn’t set one. One out of two. Not bad.

About half (51-percent) of those who made a money resolution last year said they are now “better off financially,” compared to just 38 percent of those who didn’t set one.

Furthermore, for those who made a resolution last year, almost two-thirds (74 percent) succeeded in at least getting halfway to their goal. Even better, 29 percent were completely successful.

I completed two of the goals I set in June, and got halfway through the third one. Progress! It’s all about progress!

Here are my financial goals for 2015:

• Save $53 per pay period to have an additional $1378 in the emergency fund by the end of the year (That’s how much I would have saved doing the 52-week money challenge, but I like saving consistent amounts instead of $52 one week; $51, the next, and so on.)
• Learn more about investing by reading at least one book or completing an online tutorial quarterly
• Reset Roth IRA contributions to contribute at least $100 per month
• Pay off two of the three remaining credit cards in full using the Debt Dash or snowball method
• Pay at least one extra student loan payment within the year by making a small extra payment each month

Unfortunately, the extra student loan payment will go toward interest not the balance, but I gotta do something. It’ll make me happier to know that I’m, at least, trying to speed up the repayment process.

In You Don’t Have to Be Rich: Comfort, Happiness and Financial Security On Your Own Terms, personal finance champion Jean Chatzky says just working toward your goals —not even completing them — boosts happiness.

“People who are steadily working toward their goals are much closer to the happiness levels of people who are already there then those they’ve left in the dust. … You don’t have to hit your marks to be happy. Just making the effort to a point at which you start to notice results makes a tremendous difference.”

“You don’t have to hit your marks to be happy. Just making the effort to a point at which you start to notice results makes a tremendous difference.”— Jean Chatzky

Chatzsky also says writing down goals helps you see them clearly, realize all the interim steps you need to take to accomplish them, see how much money you need to put toward them and think of the trade-offs.

“And—oh yes— it makes you happy,” she writes. “Goal setters are happier with their finances and less likely to worry about their money. Likewise, financially happy people are more knowledgeable about the amount they need to save in order to reach their goals, and are more likely to be on track to do so.”

Follow more of Chatzky’s tips below:

The Four Steps of Setting Goals

1. See what you want. (Visualization is key. Be specific. Be clear. Once you have your vision, focus on how it makes you feel. To become a better forecaster of your own happiness, you have to think about how those things, people and outcomes will make you feel if and when you get them, ex. winning the lottery.)
2. Write your goals down.
3. Turn your goal into an action plan. (Break it down into manageable parts. Saving $5,000 in a year turns into saving $100 for 50 weeks.)
4. Understand the time involved. (It won’t happen overnight.)

The Six Keys to Achieving Goals

“People who have at least started to achieve their goals are much more likely to feel useful, content, and confident.”

1. Begin.
2. Recognize the obstacles in your way. (i.e. emails from daily deals, hanging with certain people, driving by a certain store.)
3. Build better habits. (“Many people make the mistake of looking at goals as a point in time some distance away. You’re better off if, instead, you can look goals as a series of lifelong changes you have to make to achieve those desires.”)
4. Automate where you can.
5. Set up reminders.
6. Focus on tomorrow (not yesterday).

In Good Debt, Bad Debt: Knowing the Difference Can Save Your Financial Life, author  Jon Hanson writes that goal setters should consider the BDO method (Be, Do, Own) to understand why, not just how, you’re going to complete goals.

• Who will you become?
• What will you be doing to achieve these goals?
• What do you see yourself owning?

That’s why it’s great to name your goals and savings funds, like folks do on their online Capital One 360 accounts. Give goals names and meanings. And, hopefully, you’ll be on your way to success.

Cheers to 2015!