Personal finance: something we could all be better at. You’ve probably seen those intense “finance bros” on TikTok pushing out the idea that you need to get rid of all unnecessary purchases — like frequent lattes and eating out — in order to have a good personal financial standing. These types of people always make me roll my eyes because they aren’t providing a solution that is realistic for the average person. Life is all about doing the things that put a smile on your face and bring you joy. Oftentimes, money facilitates those activities. So why stop purchasing an iced caramel latte with oat milk a few times a week if that’s what you look forward to every day? In reality, personal finance is all about prioritizing your spending and setting realistic expectations for yourself. To start, I recommend asking yourself what is most important to you. If spending money on lattes weekly is important to you, don’t stop. In order to make room for those coffees in your budget, identify something that you would be okay spending less on. For me, I try to limit the amount of non-dining dollars I spend so that I have more money to spend on Amazon purchases or new clothes.
Before the semester started, I set the expectation for myself that I would be spending more than I was making. If you’re anything like me, you either don’t have a job right now or you aren’t making much money. So of course you are going to be spending more than you’re making. While this type of spending behavior isn’t sustainable for extended periods of time, it is completely fine for one or two semesters. Before I carry on, I should note that I am in no way a financial advisor, but am recommending strategies that have worked for me.
I have created a spreadsheet that tracks my spending and income very well. I record any purchases I make after major expenses like rent, transportation, utility or phone bills, and so on are paid. This spreadsheet is meant to track your spending after you make these necessary, typically large purchases. I have made this spreadsheet available for anyone to use, and it includes formulas in certain cells to calculate weekly spending and income. Click here to access the spreadsheet. In order to edit this spreadsheet, make a copy to customize for yourself.
Most of us have a generic checking and savings account with interest rates well below 1%. While these are safe places to hold your money, these types of accounts aren’t working for you. Two ways to make your money grow without doing anything are opening a high yield savings account or investing long term. Let’s break these down.
Very similar to traditional savings accounts, high yield savings accounts are a safe place to keep your rainy day fund or large amounts of savings. The only difference is that HYSA have much higher interest rates than traditional savings accounts. Do you know that half-cent deposit that randomly appears in your savings account a couple of times a year? In an HYSA, that deposit will be several dollars or even hundreds depending on how much you hold in the account. No matter the state of the market, the interest rate of a high yield savings account will always be higher than a regular savings account. These high yield accounts can be a fantastic place to store money when you plan on making a large purchase in the next few years, like making rent payments or buying a new car. Place money in an HYSA for a few years and the high-interest rate will work for itself, leaving you with possibly hundreds of dollars more than when you opened it. Various banks offer HYSA including the widely-known Citi Bank, American Express, and lesser-known online banks like Chime and Ally. Before you decide to put money into an HYSA, be sure to do some research and understand the dynamics of the account.
Everyone tells you about the importance of investing, right? But no one cares to tell you how or where. A great place to start investing long-term is opening a Roth IRA. A Roth IRA is considered a retirement account and the money you take out in, say 40 years, will not be taxed! That’s great news because financial markets will be very different in 40 years than they are now. Most Roth IRAs restrict you from removing the money in the account for the first five years, but after that time has elapsed it’s yours to take. Generally speaking though, people don’t touch that money until they’re around 60 because the longer you keep it in, the more compound interest benefits you. Putting anywhere between $10 and $100 per month in your Roth IRA throughout your adulthood can get you hundreds of thousands of untaxable dollars down the line.
One common mistake people make when putting money into a Roth IRA is forgetting to actually invest that money into something. When you open a Roth IRA, you can put as much money as you want in the account, but if you don’t choose an investment, the money will be sitting there, not growing at all. Be sure to choose an investment type. I personally choose to invest my Roth IRA dollars in an S&P 500 Index Fund. Simply put, the S&P 500 is a collection of 500 large, market-leading companies in the U.S. These companies include Microsoft, Apple, Amazon, and more. As you can imagine, these companies perform very well over a long period of time, making the S&P 500 Index a wise long-term investment. Widely known firms like Charles Schwab, Fidelity, Wells Fargo, Chase, and more all have Roth IRA accounts that you can open online.
If you are new to investing or just starting to prioritize personal finance decisions, I wouldn’t worry about investing in individual stocks, which would require thorough research and a deep understanding of financial markets. If you’re feeling overwhelmed at all, take a step back to ask yourself what your personal financial situation looks like right now. Are you spending more than you’d like? Be honest with yourself and find areas in your budget where you can cut back and prioritize purchases that are important to you.
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