The 5 basic money skills everyone should master by age 35
People doling out money advice tend to overcomplicate things. Forget about those myths that actually make it harder to save money and get richer: Even the good tips out there tend to be overwhelming in number and effort required. That seems unnecessary. After all, plenty of successful people find a way to balance their checkbook without a finance or business degree.
The good news? You really can get by with a few basic, distilled crib notes. As the personal finance writer Beth Kobliner put it, it's not all that different from reading the abridged version of Hamlet. You'll be able to follow the plot along, even if you don't end up having to understand (or concern yourself with) "what all the fuss is about."
That's hopeful news, especially if the thought of money and numbers makes your head hurt. So what are these basic money and career skills everyone will need? Don't think of this as a list of rules to memorize: like making sure your portfolio is perfectly allocated. The skills below are broader and arguably more important than any nitpicky changes you might make to your accounts. With these abilities under your belt, you'll get further in the workplace and never get hosed on your next credit card agreement again.
Stepping back and looking at the big picture, adulting is not so hard. In general, if you have the following five core talents on lock by your mid-thirties, you're on a path to a financially successful future.
1. How to budget without "budgeting"
Budgeting may seem like some pretty basic stuff for a thirty-something, but it's arguably not: Only a third of households actually keep a detailed household budget, per Gallup. This is crucial behavior, especially if you haven't hit basic goals — like fully funding an emergency fund with six months expenses.
Luckily, if Excel sheets just aren't your thing (although they can really help! We promise!), there are a few decent alternatives here tailored for different personalities.
Discipline a problem for you? You might want to consider the envelope method. As you might expect from the name, this involves setting up physical envelopes for all your expenses and keeping your cash there. Whenever the money in your "fun envelope" runs out, you'll have a concrete illustration whenever you're robbing Peter to pay Paul.
Doing this for just a little while might be enough to reset your brain's unconscious bad habits: Budgeting is mostly about the process, after all. Once your savings account starts to fatten, you can then switch to auto-deposits — and stop carefully tracking every single dollar.
2. How to hop off the "hedonic treadmill"
Our mood has a huge impact on how we spend money. More than half of Americans admit to engaging in what's known as retail therapy, the practice of buying something just to feel happier. These aren't simply people drowning their sorrows either: Boredom can drive us to spend too. So can trying to keep up with the Joneses.
It also probably doesn't help that so much hanging out happens in bars. Research shows that the more friends who show up for happy hour, the more likely you are to stick for another round (as your bar tab grows ever longer). And research suggests that — despite human psychology that makes us want more stuff the more we rise on the income scale — we can find happiness while spending less.
So a major skill any twenty-something needs to master is how to get through the inevitable phases of brokeness without throwing things on your credit card. Taking up cooking is a good start. Restaurant prices are going up even as food prices go down — if you can learn how to cook, you can productively kill time and save cash at the same time. This is Mic's guide to spending just $5 a day on delicious food.
Finally: Broke but desperately need a vacation? Here are 5 staycation ideas for less than $100.
3. How to get ahead without rubbing people the wrong way
Though the estimates vary, a solid three-quarters or more of jobs never get listed anywhere. Generally speaking, it's not enough to be good at something, you've also got to be able to find a way to get your foot in the door, or at the very least, get a tip that a given job might be available.
In other words, if you want to climb the career ladder, acquiring a marketable skill isn't really enough. You'll also need to learn how to deal with people. Revealingly, it's lack of people skills, not tech skills, that is the biggest reason IT heads lose their jobs.
So how can you develop the right people skills? An important one is to get a little better at listening to your colleagues. So many people are thinking about what they're going to say in a meeting that they rarely tune out their own thoughts and actually listen to what their coworkers are trying to say. Making use of the right body language, like looking someone in the eye while they're talking, can help too.
Another trick that can help? Remembering names is hard, especially when you're new to a job or in a networking situation. Use a research-tested (and approved!) mnemonic device like the loci method to keep everyone straight.
4. How to manage debt with clear eyes
Not all debt is created equal. There's student debt, which is a pain, but may pay off in terms of increased earnings. Ditto with a mortgage, if homeownership will actually be cheaper than renting once you factor in maintenance, closing costs, and all that other fun stuff. Of course, even if your debt can reasonably be called an investment in your future, you'll still need to come up with a plan for tackling it.
There are really two major schools of thought on how to pay off debt, both of which use snow metaphors. There's the avalanche approach, which is where you start with the scariest, highest-interest loans first. The snowball approach is the opposite, and starts with the smallest, easiest-to-pay off loans first.
In terms of dollars and cents, the avalanche method is usually the better way to go. NerdWallet crunched the numbers on someone with $43,000 in debt on a mix of credit cards, auto loans and student debt. The person who used the avalanche method paid off all their debt about a month sooner, and saved over $1,000 on interest payments.
That said, from a momentum standpoint, the snowball method has its own appeal. If your personality is such that small victories will help keep you going, you may want to take that under consideration. Know yourself.
5. How to read those confusing terms agreements
Account terms, terms of agreement — whatever you want to call them — are confusing as hell. These agreements can often be 5,000 words or more, and are also conveniently written at reading level that few Americans actually attain. It's beyond unreasonable to assume that everyday people are going to acquire the legal and financial acumen required to make your way though a given set of rules on your own.
Luckily, there are really only a handful of things you really need to look for, since regulators do require financial institutions to live up to certain guidelines. On a credit card, for instance, things like the APR (the annual percentage rate you'll be charged for carrying a balance), the annual fee (if there is one), and the grace period will be listed clearly on any offer you receive.
Another important part of the bill to unpack? Credit cards are also required to spell out how your balance gets calculated. Your balance may be based on your average daily balance, a single billing cycle's balance or the balance over multiple billing cycles. Investopedia notes that using an average daily balance, or a single billing cycle's balance, are usually a safer bet for lower charges.
Checking accounts are a little simpler. To no small extent, opening up a checking account is a simple as deciding what you value more, convenience and lots of nearby ATMs, or low-fees and earning interest on your account. The bigger banks generally offer more in the way of having lots of branches, but online banks and credit unions are usually better on fees and returning cash to consumers with higher interest rates.
As for fees, they're obviously best avoided — but even that is easier said than done: NerdWallet counts between six and seven various fees that you could see on a typical investment account, ranging from inactivity fees to fees for your paper statements.
The main one to keep an eye out for, especially if you invest in diversified things like mutual funds or exchange traded funds, is the expense ratio. Usually calculated down to the basis point (e.g., a quarter of a percent), the expense ratio is the amount of money charged for every dollar invested.
So, if you invested $1,000 and the expense ratio was 25 basis points (0.25%), you'd be theoretically paying $2.50 each year for them to invest your money. Expense ratios typically range from about 0.05% on the low end, to more than 1% on the high end.
Get these five skills on lock, and you'll have your financial ducks in a row. Yes, your finances will continue to get more complicated as you age. But by mastering the abilities above — and keeping an eye on your key personal finance numbers (like your overhead ratio, your debt ratio, and your credit score) — you will stay on track for growing wealth.
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