Personal finance can be extremely overwhelming. There are so many different terms to learn, ways to manage your money, and places to invest. When I graduated college and was determined to get out of debt as fast as possible, I thought the best way to become financially responsible was by doing more. It wasn’t until I started doing less that I actually made significant progress towards my goal of being debt free.
In the beginning, I read every personal finance book I could. (See which ones I recommend most here.) I read blogs like Get Rich Slowly and The Simple Dollar daily. I listened to podcasts during my commute about how to invest and manage your money properly. I tracked every single dollar I spent, earned, and invested. It was a bit extreme.
Once I started narrowing in on what mattered most though, I was less stressed about my finances and was able to get out of debt faster. I learned that the keys to accomplishing financial goals are focus and simplicity.
Do Less with Investing
Instead of worrying about where you can get the best return on your savings account by switching banks every 3 months for an extra 0.25%, focus on putting more money into the account.
Instead of creating a portfolio that has 25 or 50 stocks and mutual funds in it, invest in three or four funds that are already diversified for you such as the S&P 500 (or the equivalent in other world markets).
Simpler yet, invest your 401k or Roth IRA into a low-cost, lifecycle retirement fund based on your retirement year. For instance, I invest in the 2045 and 2050 funds for my Roth IRA at Vanguard.
Do Less with Savings
It can be easy to get overzealous when it comes to making different categories for savings accounts (especially when you can easily create and name multiple ones with ING Direct). Instead of having too many goals for savings, why not just pick one?
When I became determined to pay off my $28,000 of debt from my car and student loans I had just two accounts at my bank.
1. Checking.
2. Savings.
You can’t get much easier than that.
I either needed the money for bills that month (checking) or the money was going directly towards the debt (savings). Instead of wasting time trying to figure out how much I should put towards a future down payment, presents for Christmas, or a new computer I put all the extra money I could find towards the debt.
It took me over two years to pay off the debt, but immediately after I paid it off I started saving for the next goal, a wedding. In 40 days, after the wedding, I’ll pick something else.
Having a single goal to save towards is a strong motivator.
Do Less with Budgeting
Instead of making a complicated system to determine how much money you’ll spend each month, use a simple spreadsheet to track your expenses and add it up on the 1st.
Better yet, use Mint.com to automatically pull in all of your transactions. I was hesitant to use Mint.com at first, but now I’m a happy user of it.
Use a guide like Un-Automate Your Finances by Adam Baker to decrease the amount of recurring charges you have each month.
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Focusing too much where your money is going, how you are spending it, how much you make, and how you invest it can lead to analysis paralysis. It is better to pick a strategy and stick with it for six months, then take a step back to reassess.
What’s one area of your finances that you could simplify? How could you make managing your money less stressful? Let me know in the comments below, on twitter, or on Facebook.
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With over $50k in student loans I have asked myself offer its worth working hard to pay that off as soon as possible or if I should stretch them out, pay the minimum and use the extra money towards other things such as paying off the car loan, or saving money for the next house. With the income based repayment plan I currently pay $0 a month though interest accrues. If I stay in government for 9 more years it will all be forgiven. In 19 years it will be forgiven no matter what. Of course over time as my income goes up my payments will go up which keeps it manageable. What do you think?
I would say that it all depends on whether or not you think you’ll stay with the government for 9 more years and what the percents are on your loans versus other debt.
If you know for sure that you will be at the gov’t for that long, I wouldn’t try to pay them off sooner and would put the extra money elsewhere (retirement, mortgage, etc.).
If you don’t think you’ll get forbearance on your student loans than it comes down to interest rates. If your student loans have a higher % than your mortgage, it makes the most sense to pay them off first.
Not to mention that its difficult to predict whether or not you will want to work for government forever. In the military, you can require after 20 years of service with a sweet pension. Many servicemen that had say, 12 years in and were unhappy, figured they better just suck it up for the next 8. That’s quite a long time (and a poor incentive structure).
I meant “retire,” not require. Oops.
Very true. Is it really worth it to say in a position just for the loan forbearance? Most likely not.