Money is the number one stressor for Americans, according to the American Psychology Association.
Even when the economy is going well, people still feel financially insecure.
A recent survey from the National Foundation for Credit Counseling's (NFCC) found that three out of four people believe they could benefit from additional financial knowledge - including practical answers to everyday situations.
With this in mind, we talked to money management guru Niki Canotas to get sound, practical advice that you can put in place today. Tips on how to manage your finances in your 20s, 30s and beyond.
Canotas is an independent financial advisor with Sequoia Wealth Advisors and Investment Management, LLC and has over 20 years of advisor experience. With great life lessons she has personally learned along the way, her pearls of wisdom and uncomplicated golden rules are the kind of no-finance-degree-required advice we all need!
In fact, you may just want to bookmark this page so that you can come back over the years.
How to Manage Finances When you’re Still in School
"The Whole Concept is to Start Early."
Canotas advises that if you are at an age where you are earning, and spending your own money, then you can also begin to learn the lessons of saving.
It may be saving for an ice-cream, a first skateboard or something much bigger.
Learn to save - and learn early.
- Younger children: A week is a really long time. Encourage kids to save for smaller items first until they understand the idea of delayed gratification.
- College students: If your parents are paying your 'room and board,’ you can still be putting aside money from a part-time job. Life after college will be incredibly lean - intern wages vs. the high cost of rent. Learn to save – and start early.
"Always be Saving for Something."
A firm proponent of paying yourself first – that is, paying your savings account first; Canotas suggests that if you can't pay your savings account, then you need to adjust your spending.
Even as a student, you need to get into the habit of saving for ‘something.’ If you save, you won’t be going back to your parents to ask for more or asking them to buy you the big things you want because you spent all of your money at Starbucks!
"Split your Income Three Ways."
No matter your earnings, split it three ways; 50%- 25%-25%.
- The first 25% is paid to your IRA or pre-tax 401K contribution.
- The next 25% goes into a savings account, this is your ‘saving for something’ account.
- The remaining 50% is for living and entertainment.
After the HAVE TO expenses: Housing, Utilities, Taxes, Insurance and reasonable food budget.
“Seeds are Cheap. Trees are Expensive.”
Seeds are cheap. From those seeds, you can grow many trees.
Given the investment of time, your small investment could be worth thousands of dollars in years to come. This is what can happen if you put 25% of your earnings into an IRA account.
With the beauty of compound interest, $100 today can grow to $404 if invested for 20 years at an average IRA return of 7% interest. Add just $10 a month, and that $100 becomes $5,645! (Calculate your investment using Investor’s compound interest calculator.)
The earlier you start planting seeds, the more trees you will have in the future.
How to Manage Finances in your 20s
“How Frugal Can you Be?”
This is your motto for when you get that first job, Canotas advises.
Housing and transport will be your key daily expenses and do your best to minimize those costs. What you spend today will impact your future the most?
If you live “champagne wishes and caviar dreams” on credit, life will always be more expensive, and opportunities could be lost for the short term dream put on credit cards repeatedly.
Continue to split your income 50-25-25:
- 50% on living and debt payment
- 25% to retirement savings
- 25% for "something" savings
“Get your Budget Set.”
Your savings are the only non-negotiable expenses in your budget. Everything else can be minimized, discounted or forgone.
There are many budget management apps available, and so, really, you don't have to be a spreadsheet ninja here. The most difficult part is sticking to your budget each day, each week, each month.
“The Bank of Mom and Dad May Not Always be Open.”
Start building an emergency fund. This should be the first “something” you are saving for.
If you don’t, where does your rent money come from if you lose your job? Your parents are focused on funding retirement, and making sure you’re not paying for their aged care, they may not be able to help you out.
Start small and grow your emergency fund. Aim for a month’s salary equivalent, then two months. The gold standard is six months of savings.
“Learn to Manage Credit and Learn How to Accelerate, Not Just Pay Off, but Finish with Debt.”
Paying interest on credit card debt is like over-paying for everything you own.
Would you buy a pair of shoes for 25% extra?
That is the cost when you put those shoes on a credit card and don't pay it off in full within the interest-free period.
Now is an excellent time to test how you manage credit. You have time to make small mistakes and learn from them. Credit card reward miles are a cool benefit of a credit card, but if you aren't completely paying your card off each month, you are effectively paying for each mile you 'earn.’
How to Manage Finances in your 30s
“Learn to Buy Used.”
Canotas tells the story of two people buying a car. One buys a brand new car, say a Nissan, for $30,000. Another buys an almost new $50,000 BMW for $30,000 - because the guy selling it was in a hurry to sell.
They both paid cash, but who got the better deal?
The BMW essentially depreciated $20,000 in two years. This ‘buy used’ idea can be extended to many high costs, short term use items, kids' furniture and toys, bicycles, electronics, and more. Buy a more modest car and fund an IRA vs. buying the flashiest car….
“You’re an Adult. You’ve got to Have that Budget.”
If you skipped the earlier lesson of setting up a budget and sticking to it, well - now is the time to 'grow up’ and get serious.
Almost every financial advisor will tell you to set up a budget. Why? Because they work!
Take stock of your income, your priorities, your dreams, and then, the realities. A budget is a good reality check to your current, day-to-day financial situation.
Always live below your means – spend less than you earn.
“Keep Filling that Emergency Fund.”
Continue building first one month, then three months of cash in an emergency fund. The goal is to reach the platinum standard of 12 months of living expenses.
You really only need one month of cash on hand (in your money market account), the rest can be invested. Canotas suggests ladder investing with your emergency fund. But she cautions; this can get complex and recommends that when you get to the platinum standard level, you should chat with your financial advisor.
“Do not Overspend on a Wedding. Or you Will be Inviting your Friends and Family to Celebrate the Gift of Debt."
Friends and family would rather wish you a life of happiness rather than a life of debt.
Focus on the things that are important to you today and in the future. (Side note: if you are getting married, you should both be on the same page with finances).
Many couples create beautiful wedding celebrations with a minimum spend. Think of your wedding in terms of an hourly rate – if your wedding costs $50,000 and goes for five hours, that is $10,000 per hour for a party.
Another tip for the ready to be engaged couple, “Buy a smaller, starter diamond at first. Then if you are sound financially, upgrade at your 20th Anniversary.”
How to Help your Children Manage Money
“Again, Seeds are Cheap. Trees are Expensive.”
Teach your children the 50-25-25 concept. When you give your child their first dollar, present it in quarters with three jars. Teach them what happens when the "entertainment' fund is empty – that's right, no entertainment (and stand firm). Celebrate the growing savings jar.
Educating your children about finances now will help them stand independently in the future rather than utilizing the “bank of mom and dad.”
“Open Up a College Fund for your Kid Before They’re Even Born.”
This tip is from Canotas’ firsthand experience and regret.
It took her ten years to get pregnant, and she regrets not starting a college fund for her son before he was even conceived. If you don’t end up having kids or your kids don't go to college, then you can take the money, and you can go to college.
Canotas laughs, “How many of us are in our second or third career in our 40’s?”
“Kids can Also be Saving for Something.”
Blowing all of their allowance on fast food or computer games is not setting up a child for future success.
Kids are like sponges, so make it obvious what you are saving form and then celebrate with your child when you pay cash for it.
How to Manage Finances in your 40s
“Accelerate Any Debt.”
If your mortgage has twelve monthly payments, make a 13th payment each year – this extra payment can knock about six years off your mortgage.
Buying a house is an appreciating effort; the value increases as your payments decrease. Over time rents go up, but mortgage payments don’t.
A mortgage payment from the 1980s is about the same as a car payment today.
“Taking a Vacation? You Better be Paying Cash.”
Or, for those of us obsessed with earning rewards points, put it on your credit card and pay that off with cash immediately.
When you pay with credit and don't pay it off immediately, you incur very high-interest charges.
You will basically be adding an extra cost to your vacation. Say you got a deal and paid $2,000 for your all-inclusive vacation – with credit card interest, that vacation just cost you $3,000. Not such a great deal after all.
How to Manage Finances in your 50s
“You Need to Buy Long Term Care Insurance.”
Long term care insurance can be established as both a life insurance or care benefit.
If you die, your estate gets the life insurance; if you live, you can use the long-term care benefits to pay for your carer costs.
These plans can be set up as upfront lump sum payments, monthly payments, or a combination. Again, a qualified financial advisor can talk you through options.
“We’re Not All Betty White.”
We won’t all live a long healthy life and keep our career going into our 90s, like actress Betty White.
Canotas suggests that this is the time to max out your 401K and IRA contributions - so that you can relax and enjoy your retirement period when it comes!
At this time, if you have maintained a good saving schedule, keep it up.
If you haven't, then start immediately. "It may hurt your lifestyle a little to do it, but it is so good when you do it,” Canotas says.
How to Manage Finances in your 60s
“Keep Going. Now is not the Time to Stop.”
With kids grown up and living independently, your expenses should now be much less.
Plan to make your life as affordable as possible. As cheap and as frugal as possible so that you can save the money for when you stop working. If you have extra time and energy, now may be a great time to start a ‘side hustle’ for extra money too.
- Keep filling that IRA.
- Keep paying cash and reaping the discounts.
- Keep maintaining your house. If you're going to plan on staying, this will keep your home in good shape as you age. Or, if you're selling your house, deferring maintenance means your house is cheaper when you sell it.
- Consider that you may need to step in to help your parents. Be prepared financially for this with savings.
- If you are set up well, this is the time to buy a second home, a rental property, or take the family reunion trips.
“It takes 20 years to save for retirement. You're in your 60s. If you’re behind its mission #1, it’s now or never.”
How to Manage Finances in your 70s
This is where poor money management habits will come back to bite you.
“If you haven’t taught your kids how to be financially savvy – this is when they will be calling you.” Canotas says. For your own financial security, as you age, the bank of mom and dad should now be closed. If it must be open, then set a budget that does not handicap you financially.
“Consider your Purpose-Driven Life.”
These days you are likely to live into your 90s, and you need a reason to get up each day.
Consider small side jobs in your field of expertise, perhaps reinventing yourself and maybe selling a product you grow at a monthly market, volunteering at church, or a local school or museum.
In fact, Canotas is setting up her purpose in life now.
When she's not busy advising clients, you can find her knee-deep in the honey-making business. Her career has been saving clients money, and now she is helping to save bees.
Final word; Finance Golden Rules to Live By
Canotas' final words of financial wisdom: no matter what else is happening in your life, every day and every way, live below your means. Avoid paying credit card interest, buy things on sale, and pay with cash you already have in your hand as often as possible.
"If your money doesn't have a job and you don't have money, you will always have to have a job."