ADVANCEPRAISEFORBrokeMillennial

“Ifyouhaven’tquitegotthehangof‘adulting,’followErinLowry’sspot-on,oftenfunnyfinancialadvice.You’llbeinspiredbyhowshesuccessfullysidesteppedstudentloandebt,negotiateda40percent(yes,40percent!)raise,andmanagedtotackleahostofthornymoneysituationsinherrelationship,herfriendships,andevenwithherparentsandbosses.Bestofall,Erinrevealshowyoucandoallthistoo.BrokeMillennialisnotyourtypicalpersonalfinancebook.ThisisthewisdomIwishIhadbeforeImadeafinancialmessofthingsinmytwentiesandearlythirties!”

—LynnetteKhalfani-Cox,cofounderofAskTheMoneyCoach.comandNewYorkTimesbestsellingauthorofZeroDebt:TheUltimateGuidetoFinancial

Freedom

“BrokeMillennialtakesthetypicalpreachingoutofmoneylessonsandreplacesitwithhumor,empathy,andafun,pick-your-financial-pathtwist,forsuccessfullynavigatingallthefinancialquestionsyou’llfaceintherealworld.”—FarnooshTorabi,financialexpertandhostoftheaward-winningpodcastSo

Money

“Thisistheultimatemillennialguidebookonpersonalfinance.ErinLowrytakesyouonajourneyfrombasicmoneyconceptstoretirementfundamentals,andfromsalarynegotiationtohomeownership.Shealsodoesagreatjobofreducingjargonandsharingknowledgethatispracticalandactionable.Ifthereisabookyoumustreadtogetyourfinanciallifetogether,IhighlyrecommendBrokeMillennial.”

—JasonVitug,bestsellingauthorofYouOnlyLiveOnce:TheRoadmaptoFinancialWellnessandaPurposefulLife

“BrokeMillennialismygo-topersonalfinancebookwhenIamworkingwithmillennials.It’sfilledwithpracticalstep-by-stepinstructionsandguidesthatanytwenty-orthirty-somethingcaneasilyusetochangetheirfinancialsituation.”

—LaurenGreutman,frugallivingexpertatLaurenGreutman.com

“Lowrybringsintosharpfocuswhat’sgoingtomattermoney-wisetoyoungadultsstartingoutintheworldatatimewhentheoddsseemstackedagainstthem.BrokeMillennialisrichwithspecificadvicetoguidereadersonthepathtofinancialwellness.Millennialswhomaybeover-spendingbecauseof#FOMOneedtoreadthisbook—stat!”—BobbiRebell,authorofHowtoBeaFinancialGrownup:ProvenAdvicefrom

HighAchieversonHowtoLiveYourDreamsandHaveFinancialFreedom

“Thinkingaboutmoney,especiallywhenyoudon’thavemuch,canbepainful.ButErinLowryshowsthatyoudon’tneedtobeamathematicalgeniustogetontherighttrack.Shemakesiteasyforpeopletobuildafinanciallyhealthyplanforlife.Spendsometimewiththisbookandyourfinancialdecisionsandconfidencewillimprove,nodoubt.”

—NickClements,cofounderofMagnifyMoney.com

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THISBOOKISDEDICATEDTO...

...mydad,forplayinghisself-proclaimedroleofvillainsograciouslyandlayingallthegroundworkformyfinancialeducation.

...mymom,forteachingmehowtoaskfortheorder.

...Cailin,forshowingmewhyit’simportanttonevergiveuponyourchildhooddreams.

...Peach,forknowingthebestwaytokeepmeawakeonaroadtripistoaskaboutthedifferencebetweenatraditionalandRothIRAandbeinghappytolistentotheanswer.

Contents

AdvancePraiseforBrokeMillennial

TitlePage

Copyright

Dedication

Chapter1:MoneyIsn’ttheWorst!Seriously.ThemomentinwhichIattempttoconvinceyouthatlearningaboutmoneycanactuallybefun.

Chapter2:IsMoneyaTinderDateorMarriageMaterial?Learnhowtoidentify,understand,andovercomeyourpsychologicalblockswhenitcomestomoney.

Chapter3:DoYouHaveaGoldStarinPersonalFinance?Discoverhowyou’redoingfinanciallysofarandwaystotakebettercontrolofyourmoney.

Chapter4:DealingwiththeDreadedB-WordThebasicsofbudgetingandhowtofindthebudgetingmethodthatsuitsyoubest.

Chapter5:PickingtheRightFinancialProducts(akaTheChapterinWhichThisBookPaysforItself)Uncoverthewaysbanksarescrewingyouoverandwhatyoucandotostopthem.

Chapter6:CreditReportsandScores:TheReportCardforLifeGetyourcreditscoreonfleekwithouttakingonunnecessarydebt,andlearnhowtohandleitemsincollections.

Chapter7:Wait,IShouldn’tJustPaytheMinimumDueonMyCreditCard?Makesureyouactuallyunderstandhowtouseacreditcardproperly,andlearnhowtofindthebestonewithperks.

Chapter8:Yikes,IAlreadyHaveConsumerDebt.WhatNow?Ditchthatdebteffectivelywithoneorseveraltoolsexplainedinthischapter.

Chapter9:StudentLoans:HowtoHandleThemWithoutHavingaFull-OnPanicAttackThetitlesaysitall.

Thetitlesaysitall.

Chapter10:I’veGotDebt,SoWhyShouldICareAboutSaving?(PayYourselfFirst)Findoutwhyyoushouldsaveandhowtodosoifyouhavedebt;ifyou’redebtfree,checkoutthetipsonsavingandseeyournetworthskyrocket.

Chapter11:ICan’tAffordtoSplitThisDinnerBillEvenly!Navigatingfinancesandfriendship.

Chapter12:GettingFinanciallyNakedwithYourPartnerHowtohavethatfirstawkwardmoneyconversationwithyourpartnerwithoutyouorhim/herrunningforthedoor.

Chapter13:PayingRenttoYour’Rents:OvercomingtheEmotionalandFinancialBattlesofLivingatHomeAfterCollegeLivingathomecanbeafinancialwindfall,butdon’tletitdriveyouoryourparentscrazy.

Chapter14:HowtoNegotiateSalary(orAnythingElse)byLearningtoAskforWhatYouWantPeoplecan’treadyourmind,sofindouthowtotactfullytellthemwhatyoudeserveandwhyyoushouldgetit.

Chapter15:Investing:No,ItIsn’tGambling!Decodetheworldofinvestingandlearnhowaccessibleandimportantitisforyourfinancialplan.

Chapter16:Retirement:CanItEverHappenforMe?Yes,letmeshowyouhow!

Chapter17:I’mNotRichEnoughtoHireaFinancialPlannerDoubtit!Uncoverhowthemodernfinancialplanningindustryworksandwhoyoushouldtrustwithyourmoney.

Chapter18:ButMyBrokerSaidICanAffordThisMuchHouseHomeownershipmayormaynotbeforyourightnow,butunderstandhowtohandletheprocessonceyougetthere.

Epilogue:NowThatYou’reAFinancialBadass,KeepItUp!

Acknowledgments

FinancialResourcesGuide

Notes

References

Index

Chapter1

MoneyIsn’ttheWorst!Seriously.

INTHESUMMEROF1996,aglazedKrispyKremedonutchangedmylife.Well,okay,notjustonedonut:fivedozenKrispyKremedonuts.

ItallbeganonahumidmorninginNorthCarolinawhenmymomdecidedtoengageinoneofthemostdangerousandcutthroatsuburbanactivities:hostingayardsale.

AsmysisterandIwatchedherspendtheweekleadinguptoitpreparingtoselloffourunusedgoodstoflocksofwomenwearingelastic-bandsweatpantsandscrunchies(thiswasthenineties,afterall),anideabegantogerminateinmyseven-year-oldmind.Ifpeoplewerewillingtohandovertheirhard-earnedcashforausedAbsofSteelvideoat7:30inthemorning,wouldn’ttheybelikelytoforksomeovertobuydonutsfromtwoadorablechildren?

Suddenly,visionsofToys“R”Usstoreaisles—and,morespecifically,aNerfSuperSoakerI’dbeencoveting—startedtodanceinmyhead.

Ipitchedtheideatomyparents.Afteralittledeliberation,mydadofferedtobemybackerandstakethecapitalrequiredtofundmyenterprise—aswellasdrivethecartopickupthedonuts.(Again,Iwasseven.)

Myfour-year-oldsister,Cailin(no,thisisnotatypo—that’sherrealname),andIsetupshopusingourFisher-Pricepicnictableasourstorefront.Istrappedatealfannypackaroundmywaisttoholdmyearnings,donnedmypurplebaseballcap,andwewereopenforbusiness.

CailinandIspentthemorningoftheyardsalecallingouttohaggard-lookingshoppers,neighborswalkingtheirdogs,andgagglesofneon-track-suitedmoms.WeimploredthemtopurchaseaglazedKrispyKremedonutfortheinflatedpriceof50cents.Andslowlybutsurely,thecombinationofmysister’sdoe-likeeyesandmyenthusiasticsalespitchwonthemover.

Handingoverthosedonutstodie-hardgaragesaleenthusiastsandkindneighborsfeltlikegruelingworkduringanearlymorningofsummervacation.Finally,withthelastdonutsold,IpeekedintomyfannypackknowingtheSuperSoakerwasmine.Feelingtheweightofallthosequarters,IimaginedIcould

Soakerwasmine.Feelingtheweightofallthosequarters,IimaginedIcouldevenbuytwoSuperSoakersandbetheultimatewarriorofwaterfightsatthepool.

Theneverythingwenthorriblywrong.Mydadstrolledoverandaskedtoseetheearnings.Afterhavingbeen

subjectedtosevenyearsofhistyrannical“candytax”atHalloween(heclaimedfirstdibsonourlootbecausehechaperonedthetrick-or-treating,whichsetmeupnicelytounderstandtaxesinmyfirstreal-worldpaycheck),Iclutchedthefannypacktomychest,refusingtoshowhim.

Mydadtookthefannypack,dumpedourearningsonourpicnictable,andcarefullycountedoutthecoins.Hethenproceededtogivememyfirstlessonineconomics.

“Youhavethirtydollarshere,”hesaid.“Yes,”Iconfidentlyreplied.“IamgoingtoToys“R”Us.”Helookedatmeandsmiledinthatall-knowingwayparentsdo,whichleft

mewithasenseofforebodingbrewinginthepitofmystomach.“Well,itcostmeeightdollarstobuythedonutsyousold,”hesaidwhilehe

pickedupeightdollarsinquarters.*“ThenyouhadCailinhelpyousellthem,soyouneedtopayher.”Hehandedmyfour-year-oldsistersixdollars.“So,afterexpenses,yournetprofitwassixteendollars.”Hesmiledwhilepushingtheremainingpilesofquarterstowardme.

Ihadneverfeltsocheatedinmylife.

•••

RATHERTHANCONVINCINGMEthatmydadwasouttoswindleus,theKrispyKremeexperienceinsteadhasbecomethecornerstoneofmypersonalfinanceeducation.Whatmydad’slessonstartedwasalongtraditionofmyparentsteachingusessentiallessonsaboutmoneythroughtheuseofreal-lifeexamples,whicharestillfreshinmymind20yearslater.

Evenifyoufeelthattakingachild’shard-earneddonutmoneyiscruel—which,inretrospect,Inolongerdo,andIcouldverylikelydothesameonedaytoanyfuturekidsImayhave(hey,applesdon’tfallfarfromtrees)—thesefinanciallessonsservedmewellwhenIeventuallystruckoutonmyown.Forexample,theyenabledmetogetoffparentalwelfareonlythreeweeksaftercollegeandmustertheconfidencetomovetoNewYork,knowingIwouldsurvivethereasanindependentearly-twentysomething.AndevenwhenIwasn’t

makingmuch,myparents’lessonsinstilledinmeasenseofempowermentovertheissueofmoneyratherthanulcer-inducinganxiety.

Iquicklylearnedmanyofmyfellowtwentysomethings(andeventhirtysomethings)don’thavethatfeelingofempowerment.

•••

SITTINGOVERSOBER-UPCUPSOFCOFFEEintheweehoursofaNewYorkCitymorning,myfriendLizziebegantocomplainaboutherjobworkingasanassistanttotwohigh-poweredexecutivesatamajornetwork—ajobshehatedwithapassion,butitwasasteadypaycheckandprovidedinsurance.

“Okay,sowhydon’tyouquit?”Iasked.“ThewholepointofmovingtoNewYorkwastotryyourhandatactinganyway,right?”

Lizzienodded.“Well,you’retwenty-threewithnostudentloans,nodebt,nokids,no

husband—doesn’tthisseemliketherighttimetobeworkingcrappywaitressingjobsandnannyingsomeUpperEastSidebratsinthenameofpursuingyourart?”Ipressed.

“Idon’tknow—moneyjustreallystressesmeout!”sheburstout.“Ijustdon’tpayattentiontoitandthenhopeIhaveenoughattheendofthemonth.”

Herterrifiedresponsestartledme.Ifasmart,savvyyoungprofessionallikeLizzie,whocamefromafamilyofcomfortablemeansandcarriednostudentloandebt,couldn’thandleherrelativelysimplefinanceswithoutfreakingout,whatdidthatmeanforeveryoneelseourage?

WonderingifLizzie’sexperiencewasacommonproblemwithmypeers,Istartedaskingaround.Withoutfail,everyonerespondedwithsomeversionofLizzie’sprotest:Moneywasstressful,confusing,scary,andnottobediscussed.Noonewantedtotouchthesubject,evenwhilewearingahazmatsuit.Butnotonlywasthisfearkeepingmyfriendsfromtryingtounderstandhowmoneyworked;itwasalsopreventingthemfromtakingriskstogetaheadintheircareersandevenperpetuatingthedeadlycycleoflivingfrompaychecktopaycheckwithnoplanforthefuture.

AsIthoughtaboutthis,Iwondered,Whydon’tIfeelthesameway?AmImissingsomething?

Thenitdawnedonmethatgrowingupwithparentswhoconstantlyusedreal-lifemomentstoteachmeaboutmoney(anddeprivedmeoftwoSuperSoakers)hadpreparedmetohandlemyfinancialaffairs,andmyfellow

millennialshadn’tbenefitedfromsuchpreparation.ButafterseeingwhatmoneyfearsweredoingtoLizzieandothers,IneededtofindawaytohelpothermillennialsexperiencewhatIhad.SoIdecidedtodowhatanyslightlybored-at-workmillennialwoulddo:Istartedablogaboutit.

BrokeMillennial.comlaunchedasaplacewhereIcouldtakestoriesfrommyownlifeexperiencesandusethemtotalkaboutmoneyasawaytotaketheanxietyandconfusionoutofpersonalfinance.ItbecamemymissiontoprovethatifI,ajournalismandtheaterdoublemajorwithadeep-rootedhatredformath,couldbecomefinanciallyliterate,thensocouldanyoneelse.Whilemyparentswereresponsibleforlayingthegroundworkformyfinancialliteracy,I’vealwaysbeenintriguedbyhowmoneyworkedaswell.Despitemyaforementionedloathingofmathematics,numbersthatwereattachedtodollarsignsseemedtomakesensetome.WhileIneverfocusedonfinanceincollege,Istartedreadingbooksaboutpersonalfinancebasicslikebudgetingstylesandcreditscoresandthenmovedontostudyingeconomicsandinvesting.ThesetopicswouldfindtheirwayontotheblogasIcontinuedtouseastorytellingstyletodemystifybasicfinancialconcepts.Overtime,I’vecultivatedandbuiltstrongfinancialskillsandadeepknowledgeofallmoneymatters.

Allofthisoccurredinthemidstoftryingtofigureoutmyownfinanciallifeanddealingwithcommonmillennialscenarios,likenotknowinghowtonegotiateproperlyforaraise,orworkingthreejobstomakeendsmeet(Iatealotofleftoversfromacertainwell-knownmermaid-logo-usingcoffeechain),ortryingtofigureouthowtosetupa401(k),orlearningtostandupformyselfinawkwardfinancialsituationswithfriends,ortryingtohandlemovinghomeaftercollege,anunfortunaterealitymanyyoungprofessionalsareforcedtotakethesedays.NotonlyhaveIsurvivedalloftheseveryrealandimportanttwentysomethinglifeexperiences,butIstartedsharingsomeofthemontheblog,andnowI’mlayingmythoughtsoutforyouinthisbook.

Asthesitebegantogainafollowing—firstbyjustfriendsandfamily,thenafewhundredreaders,andeventuallythousands—mywritingandthoughtsonpersonalfinancealsostartedtocatchtheattentionofthemedia.Sincethen,I’vebecomeago-toexpertonmillennialpersonalfinance,whichhaslandedmeonCBSSundayMorningandgottenmequotedandinterviewedinoutletsincludingTheWallStreetJournal,USAToday,Marketplace,NBCNews,NewYorkmagazine’sWebsiteTheCut,Mashable,andRefinery29,aswellasacontributorpositionwithForbes.

BrokeMillennialalsoledmetoanewjobataFinTechstart-upfocusedoncomparingfinancialproductsforusers.Undertheguidanceofthecofounders,

comparingfinancialproductsforusers.Undertheguidanceofthecofounders,whohadillustriouscareersinbankingandacombined30yearsofexperiencebetweenthem,Ibegantolearntheinsandoutsofhowbanksmakemoneyanddeveloptheirfinancialproducts,andthecommontricksandtrapsofdealingwithfinancialinstitutions.Eventually,IevenprogressedtotakingCertifiedFinancialPlannercoursestoofficiallyauthenticatemyknowledgeonthesubjectofallthingspersonalfinance.

Afterwritingtheblogforfouryearsandconsultingbothfriendsandcompletestrangersaboutbasicpersonalfinancetopics,it’scleartomehowmuchanxietyaboutmoneystillexists,especiallyforyoungpeoplelikeyou,andthisneedstobefixednow.Failuretodosomeansyoumaynotbeabletoaffordthekids(orpets)youwanttohave,therewillbenomoneyforyour30-before-30or40-before-40lists,oryou’lldothosethingsinlieuofsavingwisely,andthenyou’llhavetoworkuntilyoukickthebucketbecauseyouchosetodoyourwholebucketlistfirst.Thismaysounddramatic,butthepointisthatalackofbasicfinancialeducationsetsyouuptobesuckedintothestressfulblackholeofthepaycheck-to-paycheckcycle.

Thegoodnewsisthatyoucanbreakfreeofthat(oravoiditentirely),andI’llshowyouhow.DespitewhatWallStreetandsomemediaoutletswantyoutobelieve,moneyisn’tcomplicated,anditdoesn’trequirecomplexformulas.Financialempowermentdoes,however,requiretakingactionablestepstowardimprovingyoursituation,andI’mheretohelpyoufigureoutthosesteps.

IHATEBORINGFINANCIALSTUFF,SOWHYSHOULDN’TIPUTTHISBOOKDOWNRIGHTNOW?Firstofall,thisbookisn’taboringlectureonmoney.(Theworlddoesn’tneedanotheroneofthose.)It’smorelikeafinancialroadmapthatcoversvariouspathsyoucantaketogofromflatbroketofinancialbadassandgivesyouthetoolsandinformationtogetthere.Whetheryoureaditchronologicallyorflipthroughatrandom(itmakesgreatbathroomreadingmaterial,believeitornot),eachchapterwillgiveyouactionableadviceonhowtoimproveandfurtherstrengthenyourrelationshipwithmoney.

Thefirstfewchapterslaythefoundationforyoutoembarkonyourjourneytowardbuildingahealthyfinanciallife.I’llhelpyoudeterminewhatyourapproachistowardmoneyandwhatpsychologicalblocksorpitfallsmaysurrounditforyou,aswellasshowyouhowtoassessyourfinancialknow-howandimproveit.Thenwe’lltackleahostoftopicsrangingfrombudgetingtocreditcards,payingdowndebt,andmanagingstudentloans.Manyofthechaptersaddressstickysituationsmillennialsspecificallyface,suchasnegotiatingyoursalary,navigatingthoseawkwardtimeswhenfriendshipsandfinancescollide(likewhattodowhenyoucan’taffordtosplitthedinnerbillevenlywithyourpals),andgettingfinanciallynakedwithyourpartner.You’llevenlearnabitaboutinvesting,buyingahouse,andsavingforretirement—andyes,allofthosearepossible,regardlessofhowmuch(orhowlittle)youearnrightnow.

Thougheachchapterfeaturesstoriesofmyowntriumphsandfailuresinmoneymatters,it’snotjustmeguidingyouthroughthisbook.You’llalsohearfromplentyofothermillennialswhofiguredouthowtomanagemoneysuccessfullythroughtheirownmisstepsandindustry,andfinancialexpertsofferlotsoftipsandtricksthatwillturnanyfinanciallycluelessreaderintoafinanciallyconfidentone.

Youcantakeyoursweet,sweettimewiththisbook.ReadachapteratrandomwhenyouneedtospendsomequalitytimeintheWhizPalaceorfliptotheretirementchapterwhenyoustartanewjobandhavenocluehowtohandlea401(k).Maybeyoujustwanttoreadaboutsomeoneelsescrewingupandthenfiguringouthowtomakeitright.Therewillbesomefinancialjargonandchartsandstatsinthisbook,butit’smostlyasafespaceforyoutolearnaboutmoneywithmorethanadashofhumor.Bytheend,you’regoingtofeelconfident

insteadofterrorizedeachtimeyoubalanceyourbudget.LikeIsaid,managingyourmoneycanbeenjoyable...andeven,dareIsay,fun.

Beforeyoustarttheadventure,andevenifyoueventuallyjumparoundandreadchaptersoutofsequence,Iencourageyoutofirstdigestchapters2and3tohelpyouestablishyourmoneymentalblocksandfinancialbaseline.Okay,BrokeMillennial,let’sgetyourfinanciallifetogether.#GYFLT

Chapter2

IsMoneyaTinderDateorMarriageMaterial?

DOYOUTHINKOFYOURPAYCHECKasaTinderdateormarriagematerial?Inotherwords,whenitcomestomoney,doyoutreatyourfinancesasahit-it-and-forget-itsituation,orareyoudevelopingalong-lastingrelationship?

LikeTinderandotheronlinedatingapps,moneyoffersonebigadvantageforanyonewhomastersit:

MONEYGIVESYOUCHOICESMoneycanallowyoutoquitajobtobeyourownbossorstepitupfromsleepinginyourchildhoodbedandmovingintoanapartmentofyourown.Moneyhelpsyoutraveltheworld,upgradetoeatingorganicfood,indulgeyourdesiretobrewyourowncraftbeer,orsnagthelatestAppleproduct(justtakingaguessonyourtechpreferences).Moneygivesyoutheopportunitytohelpothersinneed.Andwithpropermanagementandplanning,itletsyouretireeventuallysoyoudon’thavetocontinueexchangingyourtimeandenergyforapaycheckuntilyourlastbreath.Sorry,toodark?Puttingintheefforttounderstandbothhowmoneyworksandhowyourelatetomoneycanensurethatyousetyourfutureselfupforalifeofleisureinsteadoffeelingforcedtoremainintheworkforcetokeeppayingthebills.

Nowyoumaybethinking,That’sallgreat,buthowdoIgetmoremoneysothat,usingthenewestiPhone,IcanInstagramapictureofmyselfsippingmyowncraftbrewmadewithorganicbarleyandhopsfromanexoticlocation?That’swhyyouwanttotakeamorelong-termview—tolookatmoneylikeit’smarriagematerial,notarandomTinderdate.Thegoodnewsisthatthefirststepingettingagrasponyourfinancialsituationdoesn’tinvolveanymath.Managingmoneyisn’tcomplicatedanddoesn’trequirecomplexformulas.Itdoes,however,requiretakingactionablestepstosetyourselfupforthelifeyoudaydreamabout.Inordertosuccessfullyturnyourfinanciallifearound(orjust

getstarted),youfirstneedtoidentifywhatyourmoneyhang-upsareandwhythey’rethere.

Thewayyouhandlemoneyisprimarilydrivenbyyourmentalattitudetowardit,whichisshapedbyanumberofthings,suchasyourrelationshiptofuturethinking,howyourparentsrelatedtomoney,andyourfinancialfears.That’swhyit’simportanttodeterminewhatfactorsareinfluencingyourrelationshipwithmoneysoyoucangetontheroadtofinancialempowerment.

IT’SUNDERSTANDINGMONEY—NOTJUSTHAVINGIT—THATEQUALSEMPOWERMENTYou,rightnow,haveachoice:youcaneitherletmoneycontrolanddefineyourlifeoryoucancontrolit.Mostofuswouldpickthelatteroption,butunlessyoutakechargeofyourfinances,moneywillcalltheshots.Inordertoputyourselfontheroadtofinancialsuccess,youmustbewillingtotakethetimetounderstandyourrelationshipwithmoneyand,inturn,controlitsimpactonyourlife.

Beforewegoanyfurther,herearesomebasicprinciplestofollowinordertotakecommandofyourfinances:

Haveagrasponyourcashflow(afancywayofsaying“Createabudget”).Spendlessthanyouearn(akalivebelowyourmeans).Rememberthatacredithistoryisimportant,butyoudon’tneedtogointodebttobuildone.Studentloansandotherdebtscanbemanageableonceyoulearnhowtoeffectivelypaythemoff.Knowhowtopickgoodfinancialproductssoyouaren’tpayingsenselessfeesforsomethingyoucouldgetdonecheaperorforfree.Learnwhycompoundinterestisawesome.Findoutwhyinvestingisn’tgamblingandyouneedtostartputtingsomemoneyinthemarketbyatleastsavingforretirement.Understandingwhymoneyfreaksyouout.

We’llexploreindepthhowtodoeachoftheseintherestofthebook.

HOWYOUTHINKABOUTTHEFUTUREIMPACTSYOURSPENDINGTODAYYoumight’venevergivenretirementamomentofthoughtexcepttoeitherthink,Ha,that’snotlikelytohappenformeorHmm,thiscompanyoffersa401(k)?I’lldealwiththislater.Oryoumayalsobecompletelyfanaticalaboutsaving,saving,saving,eventothedetrimentofyourpresentself,inordertobepreparedforthefuture.

Likeitornot,yourabilitytothinkaboutthefuture—orlackthereof—completelyimpactsyourfinancialsituationtoday.1

Therearethreecommongroupingsmillennialstendtofallintowithregardtotheirrelationshipstowardbothmoneyandthefuture:TeamYOLOFOMO,TeamGuardedOptimist,andTeamDreamingAboutRetirement.Whichonedoyoubelongto,andhowisthatimpactingyourfinancialdecisions?Readontofindout.

TEAMYOLOFOMO“Drinksareonme!”“I’veonlygot$150leftinmybankaccount,buthellyeah,Icantakethattrip.”“Nah,Idon’thavea401(k)setup.I’llworryaboutthatinthefuture.”“Shit,Ijustgotanotheroverdraftcharge.Noworries—Icanputthisonmycard.”

Anyofthosesoundfamiliar?YouknowwhereI’mgoing.BeingpartofTeamYOLOFOMOdefinitelymeansyoursocialmedia

profilesare#blessed,#killinit,and#livingthedream,whileyourfinancesareprobablyalittlemore#brokemillennial.

Sure,experiencesarevaluable,andduhYOLO,anddouble-duhyouhaveFOMO—butthislifestylechoicealsomeansyou’llbe#WorkingUntilYouDie.

Sincethatsoundslikeaboutasmuchfunastryingtohandleacross-countryroadtripwithjustamapandnoGPS,whydon’tyoutryfiguringouthowtobe#livingthedreambutstill#GYFLTbyflippingtothesechapters:

Chapter3:DoYouHaveaGoldStarinPersonalFinance?Chapter4:DealingwiththeDreadedB-WordChapter6:CreditReportsandScores:TheReportCardforLifeChapter7:Wait,IShouldn’tJustPaytheMinimumDueonMyCreditCard?Chapter8:Yikes,IAlreadyHaveConsumerDebt.WhatNow?

Chapter10:I’veGotDebt,SoWhyShouldICareAboutSaving?(PayYourselfFirst)Chapter16:Retirement:CanItEverHappenforMe?

TEAMGUARDEDOPTIMIST“Don’tworry,I’lltotallybeearning$120,000bythetimeI’mthirty-five.”“I’mnotsavingasmuchasI’dlike,butit’snobiggie;IcancatchuplaterwhenI’mmakingbank.”

Doyouhaveapotentiallydelusionalvisionofwhereyouandyoursalarywillbeinfivetotenyears?It’sokay,weallsecretlydo.Beinganoptimistisatrademarkofourgeneration,andnotnecessarilyabadthing.Buttoavoidanynastysurprisesdowntheroad,it’simportanttoworkonbeingproactiveabouttherealityofyourfinancestoday,justincaseyouridealizedvisionofthefutureneverquitematerializesthewayyouplan.Chaptersyoushouldflipto:

Chapter4:DealingwiththeDreadedB-WordChapter6:CreditReportsandScores:TheReportCardforLifeChapter7:Wait,IShouldn’tJustPaytheMinimumDueonMyCreditCard?Chapter10:I’veGotDebt,SoWhyShouldICareAboutSaving?(PayYourselfFirst)Chapter14:HowtoNegotiateSalary(orAnythingElse)byLearningtoAskforWhatYouWantChapter15:Investing:No,ItIsn’tGambling!Chapter16:Retirement:CanItEverHappenforMe?

TEAMDREAMINGABOUTRETIREMENT“Ishouldprobablyincreasemy401(k)contributionfrom15percentto18percent.”“No,Ican’tgooutwithyouguys.It’snotthatIcan’taffordit;Ijustdon’twanttospendmoneyincasesomethinghappenslateron.”“Man,IneedtogetasidehustlesoIcanjustsaveitallforlater.”

Yeah,thesepeopleexist.IknowbecauseI’moneofthem.Butthisisnota“we’rethebest”categoryeither.Beinghyper-focusedonthefutureisfinanciallybeneficialinthatitcanleadtowell-funded401(k)s,heftyemergencysavings,andprobablysomeadditionalinvestments,butyoumayneedadashofTeamYOLOFOMOinyourlife.Pardonthecliché,butweallneedsomebalance,andherecomesasecondcliché:youcan’ttakethemoneywithyouwhenyoudie.

Trustme,I’mnotadvocatingyoupulla180andbecomeabigspender,butbesuretotakethetimeandevenspendalittlemoneytomakememoriestodayinsteadofwaitinguntilyourtwilightyears.PullingaScroogeMcDuckat60andhavingtonsofmoneytodiveintosoundsgreatintheory,butit’salsookaytolivealittleinthepresent.Justbudgetitinwithafunfund!Chaptersyoushouldflipto:

Chapter11:ICan’tAffordtoSplitThisDinnerBillEvenly!Chapter12:GettingFinanciallyNakedwithYourPartnerChapter14:HowtoNegotiateSalary(orAnythingElse)byLearningtoAskforWhatYouWantChapter15:Investing:No,ItIsn’tGambling!Chapter16:Retirement:CanItEverHappenforMe?Chapter18:ButMyBrokerSaidICanAffordThisMuchHouse

DOYOURMENTALHOMEWORKBEFORETAKINGCONTROLOFYOURMONEYBeforeflippingtothechaptersthatwillhelpyougetonthepathtowardfinancialempowerment,youshouldtakeafewminutestoaddressyourpsychologicalroadblocksaboutmoney.Weallhavesomesortofhang-upsaroundmoney,evenyourfriendswhoseemsofinanciallyfit.Failingtoaddressyourmoneyroadblocksfirstwillmakeitdifficulttoeffectivelymakeachangeinyourfinancialbehaviors.It’snotunlikewhypeopleneedtounearththeirreasonsforovereatingorcompulsiveshoppingordrinking.There’salmostalwaysamoredeeplyrootedissue.Tryingtochangehowyouspendorsavemoneywithoutunderstandingwhyit’sdifficultinthefirstplaceprobablymeansyou’llslipup,getfrustrated,andgobacktospendingwithoutthinking.

Manyofthesechaptersofferavarietyofwaystohandlefinancialsituations(i.e.,bestwaystobudget,bestwaystopaydowndebt,bestwaystostartinvesting).Youcan’teffectivelychoosethebestpathuntilyouknowyourownrelationshiptomoneyandyourroadblocks.Solet’sworktogethertouncoverwheresomeofyourfinancialpainpointsmaybe.

YourFamilyHistoryMayBeCausingRoadblocksYourrelationshiptomoneystartedwaybeforeyougotyourfirstcreditcardorsignedforyourfirststudentloan.Itbeganformingaroundthetimeyoustartedtorealizehowthosearoundyou,mostlikelyyourparents,relatedtomoney.

Werefinancesspokenaboutinhushedvoiceswhenyouweregrowingup?

Werefinancesspokenaboutinhushedvoiceswhenyouweregrowingup?Didyourparentshaveopenconversationswithyouabouttheirbudgets?Didyourchildhoodfriendssayitwasrudetoaskiftheygotanallowance?Didyourparentsstruggletomakeendsmeet?Didyourfamily’swealthmakeyouuncomfortablearoundyourpeers,or,ontheflipside,didyoueverfeelashamedfornothavingasniceahouseorclothingortoysasoneofyourfriends?

Noneofthesequestionsisacondemnationofhowyouwereraised.Yourparentslikelydidthebesttheycouldforyouandyourfamilywiththeinformationavailabletothemandtheirownpsychologicalrelationshipwithmoney.

However,knowingwheresomeofyourmoneyanxietiesandmisunderstandingsstemfromcanhelpyouinyourownpursuitoffinancialempowerment.

“IbetyourmomstillhasherFirstCommunionmoney,”oneofmyunclessaidtomeinjestwhenIwasinmyearlytwenties.Beforethatcomment,I’dneverreallygivenmyparents’leveloffrugalitymuchthoughtbecausethefinancialbehaviorsyougrowuparoundseemperfectlynormal.Myparentsweren’tbigspendersonmaterialgoods.Theynotoriouslymovedtheirfavoritecouch(whichwasolderthanme)aroundtheworldwithusinsteadofeverindulginginthepurchaseofnewlivingroomfurniture.Mymomdidn’thaveaclosetfullofdesignerlabels,andmydaddidn’townallthelatesttechgadgets.Muchtothedelightofmeandmysister,Cailin,myparentsdidchoosetoindulgeinonearea:travel.Soearlyoninourlives,CailinandIbothstartedtovalueexperiencesandmemoriesoverpossessions.

ThereisnotasinglemomentinmylifewhenIcanrememberhearingmyparentsargueaboutmoney.Theyseemedcompletelyinsyncabouthowandwhenmoneyshouldbespent,becausetheywereunitedinamentalityoflivingbelowtheirmeansandsavingforthefuture.AlmostadecadeafterIleftthehouseforcollege,Ilearnedmydadactuallymanagedtosave80percentofhissalaryduringourfamily’stimelivingoverseas,thankstotheperksofhiscompanysubsidizinghousingcostsandpickingupthetabforinternationalschooltuition.

Itellyouthisbecausemyparents,knowinglyornot,gavemeablueprint—oramoneymind-set,ifyouwill—forhowtohandlefinancesthatsaid:“Moneyisn’tstressfulaslongasyoudon’tspendtoomuch.”

However,Itoostillhavehang-upsaboutmoneybasedlargelyonthismentality.It’sdifficultformetospend.I’llagonizeoverseeminglyinsignificantpurchases.It’shardformetooutsourcechoresthatwouldsavemetimeand

purchases.It’shardformetooutsourcechoresthatwouldsavemetimeandthereforeenablemetoincreasemyearningpotential.AndIspentabulkofmyearlytwentiessaying,“Ican’taffordtodo[fillinmillennialindulgencehere]”whenIcertainlycouldhavebutjustdidn’twanttospendthemoneyforwhateverreasonatthetime.Andyou’llfindthatifyoutellpeopleyoucan’tgoenoughtimes,they’lljuststopinvitingyoutogoalongonhappyhours,daytrips,concerts,andthelike.

Despitethesehang-ups,whichI’veidentifiedbutstillstruggletohandle,I’mgratefulthatthemoneymentalitymyparentspasseddownultimatelyincludedamessageoffinancialcontrolandnotfear.

Thismaynotbesimilartothementalityyouinherited,consciouslyornot.Yourfamily’sapproachtofinancesmayhavelookedmorelikeoneofthefollowing:

Scenario1:MomandDadconstantlyarguedaboutmoney.Whetheritwassnidecommentsaboutarecentpurchaseorfull-blownyellingmatchesoverthebills,moneymayhavebeenasourceoftensioninyourhouseholdasyouweregrowingup.Watchingparentsfightoverhowmuchisokaytospend,howmuchneedstobesaved,howthey’regoingtopaythebills,andwhodoesanddoesn’tcontributetothehouseholdcanleadtoyou—thechild—believingmoneyisnothingbutasourceofdrama.

Thismentalitycouldmeanyoutendtodealwithmoneyassparinglyaspossibleinordertoavoidtensioneitherinyourownrelationshipsorjustinyourpsyche.It’salsopossibleitsentyoutowardtheotherextreme:tobecomeaseducatedaboutfinancesaspossibleandmakesureyoualwayshadenoughtocoveryourselfsoyou’dneverfeelthestressofthatno-moneychildhooddrama.

Scenario2:Youwerescoldedforaskingaboutmoney.“Mom/Dad,howmuchdoyoumake?”

“That’snoneofyourconcern.”It’snotuncommonforparentsorotheradultstoscoldchildrenforasking

aboutmoney.Unfortunately,yourparents’unwillingnesstohaveaconversationaboutmoneycanleaveyouthinkingthatit’stabooordirty—similartothewaymanyfamilieshandleconversationsaboutsex.(Whileparentsmaynotwanttoshareincomedetailswiththeirchildrenforanynumberofreasons,it’sstillimportanttoexplaintokidshowmoneyworks.)SoifMomorDadhandedyouablueprintthatsaysmoneyisatabootopic,propstoyouforevenopeningthisbook!Youcouldhavedecidedtoavoidtalkingfinancesatallcosts,whichwill

costyoudowntheroad(ifithasn’talready).

Scenario3:Youassumedeverythingwasokay,untilitwasn’t.Back-to-schoolgear,goingouttoeatroutinely,anewcareveryfewyears,updatedtechnologyinthehouse—thesewould’vebeenindicatorstoyouthatyourfamilyhadacomfortableamountofmoney.Youcouldcoverthebasicneedsplustheluxuryextras—butnotsoluxurythatyoufiguredanewcarwithabigribbonwouldbeinthedrivewayonyoursixteenthbirthday.Ormaybeyoudidandthatwaspartoftheproblem.

Youmayhavegrownupwiththebeliefthatmoneywasanonissueinyourhome,butunbeknownsttoyou,yourparentswerelivingatorabovetheirmeans.Onesmallhiccup—theprimarybreadwinnergettingfired,afamilymembergettingsick,adownturnintheeconomy,oradivorce—couldupendtheentirefacadeofacomfortableexistence.

Livingatorabovetheirmeansisemphasizedbecausetheretendtobetwocampswhenitcomestospendingmoney:thosewholivebelowtheirmeansandthosewholiveabovetheirmeans.Thoselivingbelowaresaving,andthoselivingabovearecarryingdebttoaffordtheluxurycars,McMansions,andprivateschools.Thethirdgroup—thoselivingattheirmeans—aretechnicallyinapaycheck-to-paycheckcycle,possiblywithoutrealizingthat’sthescenario.Theymayhaveatinybitsaved,butnotenoughtoreallymitigateamajordilemma,suchasajoblossorillness.Livingatyourmeansusuallysignalstochildrenthateverythingisokaybecausethere’snotensionaboutmoneyuntilthatsingleeventthattriggersthespiraldown.

Fortunately,italsomaynothaveoccurred,butyoumaynowbeunderstandingthatyourparentslivedattheirmeansbecausethey’rerealizingretirementisn’tapossibility.Therejustisn’tenoughsavedtosupportthemwithoutasteadyinfluxofcash.

StillUnsureAboutYourFinancialRoadblocks?Answerthefollowingquestionstohelpyoufigureoutwhichcombinationofstepswillbebestforyou:

What’smyfirstmemoryofmoney?Howdoesthatmemorymakemefeel?

HowdidIgetmoneytospendgrowingup?

WhenIdidhavemoneytospend,whatdidIbuy?

Whataremyfinancialconcernstoday?

WhydoIhavetheseconcerns?

HowdidmyparentstalkaboutmoneywhenIwasakid?

WasItoldthataskingaboutmoneywasrudeorinappropriate?

Didmyfamily’sfinancialsituationmakemeuncomfortablearoundmypeers?

AmItakingactionablestepstoensurethatmyfearsdon’thappen(e.g.,amIsavingtomakesureIcanalwayspayrentevenifIlosemyjob)?

HowcanIbesureI’mincontrolofmymoney?(Listatleastthreeaspectsaboutfinanceyouwanttoworkonunderstanding.)

Nowtakesometimetoreadoveryouranswersandreflectonwhatyourresponsesandgutinstinctsmeanaboutyourunderlyingmoneymentality.

Areyouworriedaboutmoneyrunningout?Beingindebtforever?Needing

Areyouworriedaboutmoneyrunningout?Beingindebtforever?Needingtohelpoutyourfamilyfinancially?Thenyourfinancialmind-setmaybeoneoffear.

Didyouevergettohavehealthyconversationsaboutfinancesgrowingup,orwereyouinstructedthatmoneyisadirtyconversationakintodiscussingyoursexualproclivitiesinpublic?Iftalkingmoneystillseemsasdirtyashandlingthecurrencyitself,thenyoumayhaveafinancialmentalityofanxietyornaïveté.

Havethewaysinwhichyouspentmoneyasachildevolved,ordoyouhavesimilartendenciestothisday?Youmightbefeelinghelplessorelectingtostaythatway,orperhapsyou’repracticingextremefrugality,dependingonyourearlybehaviors.

Maybeyou’reexperiencingamixofseveralfactors.Onceyoureflectonhowyourelatetomoneyandunderstandsomeofthe

reasonswhy,thenIwantyoutotakesometimetowritethreefinancialgoals:1.Short-termgoal:Whatwillyoudotoday,tomorrow,nextweek,thismonth,tostartmakingactionablechangestoreachthethreeaspectsaboutfinancethatyouwanttoworkonunderstanding?

2.Medium-termgoal:Setabenchmarktohitthat’satleastayearaway.Doyouwanttogetoverafearofinvesting?Thenplantohaveknowledgeablyinvestedatleast$1,000byayearfromtoday.

3.Long-termgoal:Decidetheonebigchangeyouhopetoseeinyourselfoverthenextfewyearsandmovingforward.Perhapsit’saboutcreatingthefinancialmentalityyouhopetopassdowntoyourchildrenormodelforyoursiblingsorfriends.

Okay,you’vedonesomeofthetoughwork!Areyoureadytogetstartedonbuildingyourknowledgesomoneyneverneedstocausefeelingsoffear,anxiety,helplessness,orignoranceeveragain?

Let’s#GYFLT!

Chapter3

DoYouHaveaGoldStarinPersonalFinance?

NOWTHATYOU’VEtakenthetimetoaddressyourpotentialroadblockswhenitcomestomoney,it’stimetogetabetterunderstandingofthepiecesthatmakeupyourfinancialpuzzle—andhowtoputthatpuzzletogether.

Inthischapter,we’regoingtowalkthroughsomepersonalfinance101topicsandthenuseascorecardtofigureouthowmuchyoualreadyknow(orthinkyouknow)aboutmoney.Evaluatingyourresultswillhelpyounavigatethefollowingchapterssoyouknowwhereyoushouldimproveyourknowledge.Beprepared,becausetherearenoparticipationtrophieshandedouthere.

FINANCIALBENCHMARKSANDFORMULASYOUSHOULDKNOWPeoplearejudgmental.Let’sjustadmitthat.WescrollthroughInstagram,Snapchat,andFacebooktoseewhateveryoneelseisdoingandinstantlycompareourlivestothecarefullycuratedonesourfriendshavecreatedforthemselvesonline.Soitmakessensethatwewoulddothesamewithourfinancialsituations.Infact,I’dencourageyoutocompareyourselftothebenchmarksavings,debt,andinvestingaveragesofyourpeers,becauseitcanbemotivationalandhelpyoustayontracktoactuallybeabletoretireoneday.Yes,thisispossible—andprovenlaterinthisbook—sodon’tyouscoffatme!

HowMuchYouShouldHaveSavedforRetirementThefollowingtableprovidesbenchmarkratiosofhowmuchyoushouldhavesavedbycertainagessoyoucancompareagainsthowmuchyouactuallyhavesaved.1

Age Ratio

25 0.2:1

30 0.6–0.8:1

35 1.6–1.8:1

45 3–4:1

55 8–10:1

65 16–20:1

Theleftsideoftheratioindicateshowmanytimesyoursalaryyoushouldhavesavedbytheageintheleft-handcolumn.Forexample,ifyou’re25yearsoldandearning$55,000ayear,thenyou’reexpectedtohave0.2of$55,000(or$11,000)savedforretirement.Ifyouearnedthesamesalarybutwere35,thenyou’dbeexpectedtohave1.6(or$88,000)to1.8(or$99,000)savedforretirement.Byage65,youneedtohaveupto$1,100,000saved,assumingyoucaneffectivelyliveoff$55,000ayear.

Keepinmindthatthischartisbasedontheaverageneedsofpeopleplanningtoworkfor40yearsandthenretireat65andliveofftheir401(k)andotherinvestments.Therearemanyfactorsthatcouldmakeyoursituationdifferent,includingwhenyouplantoretire,howmuchyouforecastspendingperyearinretirement,ifyouplantohavechildren,anyexistingoranticipatedmedicalconditionsthatmayrequiremoreperyearinretirement,andexpectedorreceivedinheritancesthatmaychangewhatyouindependentlyneedtosave.Soit’simportanttousethischartasaguideonly.

Thatsaid,ifyoupulledoutyourcalculatorapptodetermineifyou’reontargetanddiscoveredyou’rebeatingtheexpectedratio,feelfreetogiveyourselfagoldstar.Youcanalsolearnmoreaboutretirementbyflippingtochapter16.

EmergencyFundRatioRetirementisn’ttheonlythingforwhichyoushouldbesaving.Thealmightyemergencyfundisoneofthemostharped-onpiecesoffinancialadvice,andforgoodreason.Anemergencyfundislikecreatingyourowninsurancepolicyagainstdisasterbysavingupeasilyaccessiblemoney,whichmeansyoushouldputthosefundsinabasicsavingsaccountsoyoudon’thavetosellstockstogetatyourmoney.You’renottotouchanemergencyfundunlessitlegitimatelyqualifiesasanemergency,andno,Beyoncédroppingasecretalbumandannouncingapop-upconcertnearbydoesnotcountasanemergency.

Emergencyfundsaretheretoprotectyouifyourbosscallsyouinforanunexpectedmeetingandtellsyouit’stimetoclearoutyourdeskandbegonewithinanhour,orifapipeburstsinyourapartmentandruinsallyourstuff,andthenyouneedtobuynewfurniture,clothes,etc.,becauseyourrenter’sinsurancecompanyistakingtheirsweettimeinreimbursingyou.

Theemergencyfundtargetisgenerallyagreeduponbypersonalfinancegurustobethreetosixmonthsoflivingexpenses—theamountyouneedtocoveryourbasicneeds.Theself-employedarewisetosetthetargetevenhigher,withsixtoninemonthsofexpensesinanemergencyfundofcashandcashequivalents.*

Emergencyfundcalculation:

Cash&CashEquivalents=3to6monthsofliving

expensesAmountneededtocoverbasicneeds

Forexample:Let’ssayyouneed$2,000amonthtocoverallyourlivingexpenses—rent,utilities,cellphone,studentloans,groceries,andtransportation.Youhave$4,300inasavingsaccount.Thatmeansyouhaveonly2.15monthscovered.Youneedtosaveupatleast$6,000tohaveabareminimumemergencysavingsfundofthreemonths.

$4,300=2.15monthscovered

$2,000

Icanalreadysensetheeyerollingandsarcastic“yeah,rights”atthenotionofmanagingtosaveseveralmonths’worthoflivingexpenseswhenyou’realreadydealingwithstudentloansandyou’restillpayingoffthatyearwhenyouwereabittooswipe-happywithyourcreditcardbecauseyoudidn’ttotallygethowitworked.

Despitefeelinglikemonthlydebtobligationsandthegeneralcostoflivinghaveyoudrowning,it’sstillimportanttohaveanemergencyfundofsomesort,evenifyouhaveexcessivedebt.However,itmaymakemoresenseforyoutoprioritizedebtrepaymentoverhavingthefullthreetosixmonthsoflivingexpenses.Soyourgoalshouldstillbetosetaside$1,000tobraceyourselfincasetheunexpectedhappens.It’salwayswheneverydollarofyourpaycheckisaccountedforandyoudon’thaveanysavingsthatyourcardecidestostartsmokingonthefreewayoryourdogeatsbrowniemixoryoubreakyourarmandneed$1,200tohityourdeductible.Wanttolearnmoreabouthowtobuildandmaintainanemergencyfund?Chapter10detailsexactlyhowtosave,evenwhilepayingdowndebt.

Debt-to-IncomeRatio

Debt-to-IncomeRatioDebt-to-income(DTI)ratioisexactlylikeitsounds;you’recalculatingthepercentageofdebtyouowerelativetotheamountofmoneyyou’reearning.DTIisakeyfactorlendersusetodeterminewhethertogiveyoualoan.Italsokeepsyouincheckabouthowmuchmoredebtyoucanrealisticallyaffordtohandlebeforeabigscarywordlikebankruptcyneedstobeaddedtoyourvocabulary.TocalculateyourDTI,divideyourmonthlydebtpaymentsbyyourgrossmonthlyincome.

Here’showtocalculateyourDTI:

(Monthlydebtpayments)=DTI

(Grossmonthlyincome)

First,acoupleofdefinitions:Yourmonthlydebtpaymentsmeansdebtyou’vetakenonsuchasstudentloans,carloans,housingpayments,orbalancesoncreditcardsthatyouarepayingoffinmonthlyinstallments.Yourgrossmonthlyincomeistheamountyouearneachmonthbeforethemoneyfortaxes,healthcare,retirementplans,andanyotherdeductionsaretakenout.

ThegoalhereistogetyourDTIratioaslowaspossible.Swingtoofarintheotherdirectionandyou’llstartflirtingwithbankruptcy.AseverelyhighDTIratiomakesitnearlyimpossibleforyoutorecalibrateandpayoffyourdebtsonyourexistingsalary.Unlessyousomehowcomeintosignificantlymoremoney,you’relikelygoingtobepayingallyourmonthlyincometolendersandcreditors,withnothingleftovertopayforyourbasicsurvivalneeds,likefood.

HowlowshouldyourDTIbeexactly?Well,you’llgetmixedadvicefromlenders.Forexample,BankofAmericawritesthatyoushouldtakestepstoreduceaDTIabove36percent,2whileothers,liketheConsumerFinancialProtectionBureau,cite43percentbecausemostqualifiedmortgagelenderswon’tcomenearyouifyouexceedthe43percentratio.3Lendersaren’texactlyscurryingtosharetheirunderwritingrules(nerdspeakforthequalificationsusedtodetermineifyou’llbeapprovedforaloan),buttheeducatedguesscanleadustoassumethatlendersexperiencedthatpeoplewithDTIabove43percentwerelesslikelytorepaytheirmortgages,so43percentbecamethebreakingpointintheunderwritingalgorithm.Wecan,however,workundertheassumptionthatit’sbestforyoutohaveaDTIof40percentorless.

SoWhatIsYourNetWorth?Nowthatyou’velearnedaboutsomeoftheindividualpiecesofthetotal-

Nowthatyou’velearnedaboutsomeoftheindividualpiecesofthetotal-financial-picturepuzzle,it’stimetotakeabird’s-eyeviewofyourfinances.Yournetworthprovidesasnapshotofhowyou’redoingoverallbycalculatingeverythingyouhaveandeverythingyouowe.

Nottobeconfusedwiththeimmeasurable,touchy-feelynotionofself-worth,yournetworthisoneoftheeasiestfinancialcalculationstoperform.Justdon’tletanegativenumbershatteryourself-worth!

Todetermineyournetworth,subtractyourtotalliabilitiesfromyourtotalassets.

(TotalAssets)–(TotalLiabilities)=NetWorth

Totalassetsincludemorethanjustyourincome,bankaccounts,andinvestments;youalsoneedtoaddinanyvaluablepropertyyoumayown,includingjewelry,collectibles(definitelynotBeanieBabiesbutmaybePokémoncards),andvehicles.Totalliabilitiesincludeanythingyouowe,likeyourstudentloans,autoloans,mortgage,creditcarddebt,eventhatpendingVenmochargeyouoweyourroommateforutilities.

Beingnetworthpositive—meaningyouhavemoremoneysavedandinvestedthanamountsyouowe—mayfeellikeanimpossiblefeatinyourtwenties,perhapsevenintoyourthirties.Evenifyoudon’thavedebtsorloans,itcanstillbereallytoughtodomorethanlivepaychecktopaycheckwhenyou’reyoung.It’sokaytobedauntedbythis!Butit’salsostillimportanttotrackyournetworthregularly,evenifyoukeepfeelingslightlydepressedwhenyournumbershowsupinthered(financialjargonforbeingindebt).Trackingyournetworthisoneofthesimplestwaystoseeifyou’remakingprogresstowardyourfinancialgoalsandheadingintherightdirection.Italsoforcesyoutoconfrontyourspending,debtrepaymentplan,andsavingsstrategies.

HOWDOYOUSTACKUP?Benchmarks,formulas,andratiosaregreat,butchecklistsareevenbetter.Whodoesn’tlovecrossingsomethingoffato-dolist?Reflectingonyourmentalhomeworkwithpsychologicalroadblocksfromchapter2andusingalltheknowledgeyoujustsoakedupinthischapter,let’scombineitalltoseeexactlywhereyoumeasureup.Thereareevenafewcurveballswehaven’tgottenintoyet,butwewillexplorethoseinthefollowingchapters.Thefollowingchecklistsserveasascorecardtofigureoutifyou’rea“ParticipationTrophy”kindofmillennialwithyourmoneyora“GoldStar”earner.Youmightevenbeontop

millennialwithyourmoneyora“GoldStar”earner.Youmightevenbeontopofyourfinancesenoughtoearnyourselfa“YouWentViral”award.Let’sjusthopeyouaren’ta“LivinginYourParents’BasementForever”kindofmillennialbecausethatwould,well,suck.(Butthere’shopeforyouguystoo!)

Getoutyourpenandseewhatyoucancheckoffthefollowinglists.

You’reLivinginYourParents’BasementForever

Youdon’thaveasavingsaccount.Yourcreditscoreisbelow650.You’reemployedpart-timeandmakingnoefforttogetafull-timejob.Oryoujustkeepquittingfull-timejobsbecausetheyaren’tfulfilling.You’recarryingabalanceonacreditcard(orseveral)andpayingtheminimumduewhenyouremember.Youprobablygotthisbookasagraduationgiftandjusthappenedtofliptothispageatrandomandthoughtthissoundedlikeyou.

Whereyoushouldheadnext:Youmaybeitchingtofliptoacertainchapter,butIrecommendwestartatthebeginningandworkourwaychronologicallythroughchapters1to7.Thisstrategywilllayoutallthefoundationalworkyouneedtodo(whichIpromiseisn’taspainfulasitsounds)beforekickingitupanotch,atwhichpointyoubecomethecaptainofyourownfinancialjourney.I’llseeyouinchapter4:“DealingwiththeDreadedB-Word.”

YouGetaParticipationTrophy,ButThere’sStillWorktoDo

You’vetakenastabatcreatingabudget.Youalwayspayatleasttheminimumonyourcreditcardandmostofthetimealittlebitabovetheminimum.Youhavea650+creditscore.Youpaytheminimumonyournon-credit-carddebts,suchasstudentloans.Youprobablythinkaboutcreatingaget-out-of-debtplan,butthenbinge-watchthelatestNetflixoriginalseriesinstead.Youcontributethe401(k)percentagetogetthematchonanemployer-matchedretirementaccount,butyoudidn’tsetthatcontributionupuntil

you’dworkedatthecompanyforafewyears,whichmeansacouplethousandgotleftonthetable.Youweremotivatedenoughtopickupthisbookandbegintakingsomestepstowardgettingempoweredfinancially(whichisagreatstart!).

Whereyoushouldheadnext:You’vegotsomebasicsdown,andthat’sgreat,butwewanttogetyoutobethatfinanciallyindependentmillennialthatbustsallourgeneration’sstereotypes.Startbyfocusingonchapters1to6toprovidethatstrongfoundationforabudget,workingtoa700+creditscore,findingthebestfinancialproductsforyou,anddiggingoutofdebtinthefastest(butalsomosteffective)waypossible.

YouGetaFinancialGoldStar!

Youhaveabudget.Youcontribute2percentabovewhat’sneededtogetthematchonanemployer-matchedretirementplan. Ifanemployer-sponsoredretirementaccount—suchasa401(k)—isn’tanoption,thenyou’remaxingoutanIRA.You’vebuilta700+creditscore.Youalsocheckinonyourcreditreportsonceayear.Youpayoffcreditcardsontimeandinfull,andyoukeeptheutilizationratio(theamountoftotalavailablecredityouuse)at30percentorless.Youcreatedandstartedanactionableplantopaydownanydebtandarestickingtoitbypayingabovetheminimumdueonalldebts.Youhavethreemonthsoflivingexpensesinanemergencysavingsfundifyou’redebtfree,ORyouhave$1,000setasideifyou’reprioritizingdebtrepayment.

Whereyoushouldheadnext:You’vealreadyproventhatyoucanbethemasterofyourfinances,butyoustillhavemoretolearn.Areyou100percentsureyou’reusingtheabsolutebestfinancialproducts(fliptochapter5)orthatyouknowhowtoaskforthatwell-deservedraiseatwork(gotochapter14)?Whatabouthiringafinancialplanner(chapter17)ornavigatingtheawkwardwatersoftalkingmoneywithfriends(chapter11)orevenyourromanticpartner(chapter12)?Pickachapteronatopicyou’relessfamiliarwithtostartyournextmoneyadventure.I’llseeyouthere!

YouWentViral

Youhaveabudget.Youdoamonthlynetworthupdate.You’recontributing10percentabovetheamountneededtogettheemployermatchonaretirementplanandmaxingoutapersonalIRA.Youhaveadeadlinetobedebtfree,accompaniedbyanactionableplanforhowtogetthere.You’repayingdoubletheminimumamountdueonyourloanseachmonth.Youhavea750+creditscore.Youcheckyourcreditreportsfromallthreebureauseachyear.Youhaveatleastsixmonthsoflivingexpensesinanemergencysavingsfundifyou’redebtfree,ORyouhaveatleastonemonthoflivingexpensessavedifyou’reprioritizingthedebtpayoff.Youpayoffcreditcardsontimeandinfull,andyoukeeptheutilizationratio(theamountoftotalavailablecredityouuse)inthesingledigits.You’vestartedbasicinvestingoutsideofretirementaccounts,inindexfundsorexchange-tradedfunds(ETFs).

Whereyoushouldheadnext:You’re#crushingitonthebasics,whichisgreat,butyouprobablystillhavesomeworktodo.Haveyouconsideredgoingtoafinancialplanner,decidedtogetfinanciallynakedwithyourpartner,figuredouthowtonegotiateforahighersalary,orlookedintobuyingahome?Howaboutgivingsomethoughttowhatretirementisgoingtolooklikeforyou?We’vegotallthatcoveredforyouinchapters12,14,15,16,17,and18.

YOU’VEGOTTHEBACKGROUND,LET’SMOVEONTOTHEREALWORKItfeelslikewe’vegottentoknoweachotheralittlebitnow.Youknowmoreaboutme,andwe’veuncoveredsomeofyourmoneyroadblocksandlearnedhowtolookatthepiecesofthepuzzlethatisyouroverallfinancialpicture.Nowthatyouknowyourmoneyscorecard,it’stimetodigintothechaptersthatwillhelpyousortthroughyourmoneymatters.Let’sgetstarted!

Chapter4

DealingwiththeDreadedB-Word

“THANKS,ERIN,”mycharge’smothersaid.“We’llseeyouintwodays.”Ismiledandpreparedforthebabysittertwo-step:thatawkwardmoment

whentheparentseemstoforgetit’stimetopayuporasksyouforthegrandtotalandyousecretlyhopecabfareortipwillgetthrownyourway.

Afteralongpause,Istartedtomumbleawkwardly,“Umm...It’s$80.”“Oh,right,”shesaidwhilereachingintoherFendipurse.“It’saftermidnight,

sohere’s$20foracab.”Imentallyhigh-fivedmyselfwhilestuffingthewadofcashintomypocket

andscurryingoutthedoortogettothesubway.TherewasnowayI’dbespendingtheextra$20oncabfarewhenIcouldputitintomysavingsor“funfund”envelope.

Forty-fiveminuteslater,Iarrivedhome,quietlyshuffledtomyroom,andpulledopenoneofmydresserdrawers.Inside,myfourenvelopessatwaitingtobefunded:onemarkedrent,onemarkedsavings,onemarkedfunfund,andthefinalonemarkedmoneyforAnna(myroommate,whomIneedtoreimburseforutilitieseachmonth).

Fiftypercentofmyincomewenttorent,25percenttotheAnnaenvelopeforutilities,and25percenttosavings.Thetipmoney(whichinmyexperienceNewYorkCitybabysittersoftenreceiveinadditiontoabasepay)orcabfareoftenfundedmyfunfundenvelope.

Thismethodofbudgetinghelpedmekeeptrackofmyincomewhenabout50percentofitendedupbeingincashbetweenbabysittingandworkingasabaristatosupplementmydayjobworkingforalate-nighttalkshow.

However,theenvelopemethod—whileeffective—isincrediblydumbwhenyou’reactuallystoringhundredsofdollarsincashinyourNewYorkCityapartment.Istillfeelthankfulmyapartmentwasneverrobbed,becauseadressercertainlyisn’tanincognitohidingspotforyourincome.ThereisnoFDICinsuranceforthecashstolenoutofanapartment,whichiswhymymoneyis

nowkeptsafelyinabank.*Therealsoisa0percentinterestrateformoneykeptinmydresser.(Learnmoreaboutpickingtherightcheckingandsavingsaccountsinchapter5.)

Asmycareerchangedandmyincometurnedintothedigitalcurrencyofdirectdeposit,Imovedawayfromhoardinghundredsofdollarsinmydresserandswitchedtoanewbudgetingsystem,whichIaffectionatelycalltheNo-BudgetBudget.

TheNo-BudgetBudgetdoesn’tfocusontrackingeverypenny,nordoesitallocatepercentagesofmyincometopredeterminedcategories,otherthansavings.Butit’sstillabudgetbecausenomatterhowyoufeelabouttheB-word,havingabudgetputsyouincontrolofyourmoney.Attheveryleast,youneedtounderstandhowmuchyouhavecominginandhowmuchisgoingouteachmonth.

PICKINGTHERIGHTBUDGETINGSTYLETherearemyriadwaysyoucantakecontroloveryourmoney,whichiswhyit’simperativeyouselectonethatworksnotonlyforyourfinancialsituationbutalsoforyourpersonality.Thehands-on,type-ApeopleamongusmayprefertheTrackingEveryPennyoptiontogetadailyanddetailedoverviewoftheirfinancialsituations.Ifyou’remorelaid-backyetmoneyconscious,youmaypreferapercentage-basedbudgettoknowwheretoallocatefundswithoutfocusingonmonitoringeachswipeofthecreditordebitcard.

Inthischapter,we’llreviewdifferentbudgetingstylestohelpyoudecidewhichoneisrightforyouorwhichonetoswitchtosoyoufeelempoweredinsteadofoverwhelmed.

BUDGET101OPTIONS

TheCashDietNomatterhowmanyfellowmillennialstellme,“IspendwaymorewhenIjusthavecashinmywallet,”studyafterstudyhasprovenyou’regoingtospendmorewhenyou’reswipingplastic.ThisiswhytheCashDietbudgetisidealforanyonewhoroutinelygetssurprisedbyjusthowbigtheircreditcardbillisthismonthorgetsdingedwithoverdraftfees.

Puttingallyourtransactionsonacreditcardmakesitsimpletoforgethowmuchyou’vespentbythetimeyourbillisdue.Payingoffyourcreditcardbillonceaweekisasimplewaytooffsetthisissuebecausethenyourbankaccountwillaccuratelyreflecthowmuchyouhavelefttospend.You’lllearnmoreabout

willaccuratelyreflecthowmuchyouhavelefttospend.You’lllearnmoreaboutmasteringcreditcardsinchapter7.Ofcourse,usingadebitcardalsopullsdirectlyoutofyourbankaccount,buttherearesecurityissueswithconstantlyswipingyourdebitcardthankstotheriseindebitandcreditcardfraud.Sothat’snotalwaysthebestoption.

Sowhat’sadiligentmillennialtryingtosticktoabudgettodo?Considerrebootingyourfinanciallifeinthesamewayyoupromiseyourself

torefreshyourbodyeveryJanuaryfirst.InsteadofdoingajuicecleanseorthrowingyourselfintoCrossFit,youusetheCashDiettogetbackontrack.

TheCashDietisreallyassimpleasitsounds:youpayforeverythingincash.Granted,it’sthedigitalage,soIgetthatnoteverythingcanbepaidforwithactualdollarbills.Ifyouneedtobuyaplaneticketorpayyourbills,you’llprobablyhavetodothoseonline.Buteverythingelsemustbepaidforincash.

AsimplewaytostartyourCashDietistositdownandaddupyourmonthlyincomeandthensubtractyourfixedbills.Thesebillsmayincluderentormortgage,cellphonebill,utilities,transportationcosts,studentloans,andcableorHuluorNetflix.Youshouldalsosubtracttheamountyou’reputtingtowardyourretirementfundandyoursavingsaccount.(Thinkhavinganythingtosavesoundsimpossible?Checkoutchapter10.)

Theamountleftafteryousubtractyourfixedexpensesandyoursavingsisyourstospendforthatmonth.Itmaybewisetodividethisnumberbyfourandhaveafixedamountofcashtouseeachweek.Keepingthecashinyourwalletallowsyoutoeasilyeyeballexactlyhowmuchyouhavelefttospend,whichmakesiteasytoevaluateyourimpulsepurchasesoryourcravingforthatlate-nighttriptograbtheguilty-pleasuresnackofchoice.

Whenyou’reoutofcash,you’reoutofcash.Nomorespendingfortheweekormonth.

Amonthofusingthisbudgetingsystemquicklyhelpsyouseehoweasilyyou’respendingonmindlesspurchases.Itprovidesyouanimmediatelookatwhatyouthinkyouvalueversuswhatyouactuallyvaluebecauseyou’respendingthemoney.Thisrebootwillhopefullyencourageyoutomoveontoalifelongrelationshipwithabudget,evenifyouevolvetousingadifferentsystem.

✓JUSTTHEBASICS:TheCashDiet

Incaseyoujustskimmedthatsectionorwanttoreferbacktothisinthefuture,here’sanoverviewofhowtosuccessfullyutilizeaCashDietbudget:

Doweeklycheckinsonyourbudgettoassesshowmuchyouhaveleftforthemonth.Leavea$100buffer,especiallyduringyourfirstattemptataCashDiet.Oddsarethatyouwillforgetaboutafixedexpensethatwillhithalfwaythroughthemonth.Thisbufferwillhelptakecareofthat.Topreventstoringabunchofmoneyinyourhome—whereitcouldbevulnerabletorobbery,etc.—don’twithdrawtheentiremonth’samountallatonce.LetthebankandFDICinsuranceprotectyouandwithdrawonlytheamountyoucanspendeachweek.Anycashleftcanberolledovertothenextmonth,oryoucanreallykickyourfinancialskillsupanotchandsavetheremainder.

TheTrackingEveryPennySystemDoyoutendtogetstruckwiththatfeelingof“WhatthehelldidIspendmymoneyon?!”eachmonth?ThentheTrackingEveryPennysystemisforyou—atleastforawhile.

AswithitscousintheCashDiet,youshouldpracticetheTrackingEveryPennysystemofbudgetingfortwoweeksatleastonceinyourfinanciallife.WithTrackingEveryPenny,youkeepameticulousrecordofeveryfinancialtransactioninsteadofjustsaying,“Ihave$200tospendthisweek”andspendingonlythat$200.It’sastrategydesignedforthoselookingtoregaincontrolovertheirfinanciallivesand/orthosewithintensetype-Apersonalities.

Thenamesaysitall:you’regoingtorecordeveryfinancialtransactionyoumake,downtothepenny.Youcancustomizethisbudgetplantosuityourstyleoftrackingexpenses.Forexample,youcantotalyourmoneyspentattheendofeachdayorwaittocrunchthenumbers’tilthelastdayoftheweek.Youmightrecordyourpurchasesbywritingdowneachtransaction(onyourphone,ofcourse;nobodydoesthatpen-and-paperthinganymore).Oryoumaywanttoexclusivelyuseonecreditcardforallpurchasessoyoucanjustlogintoyouraccountandmakenoteofyourdailyorweeklytransactions.

accountandmakenoteofyourdailyorweeklytransactions.Nomatterwhichtypeofrecordkeepingyoupick,thisbudgetworksonlyif

you’rediligentaboutrecordingeverypennyyouspend.Plantoreserveatleast20minutesattheendofeachdayoraboutanhouronaweekenddaytositdownandenterallyourtransactionsintoaspreadsheet,GoogleDoc,orapp.Youshouldbeabletotrackbydate,itempurchased,andtotalcost,withasumtotalatthebottomthatshowsjusthowmuchyou’vespenttodate.Youcaneventakeitastepfurtherandbreakitdownbycategories,suchasmoneyspentonfood,bills,debt,pets,clothes,andentertainment.

Usingbudgettrackerscanhelpautomatesomeoftheprocessandperhapsevenstreamlinebeautifulchartsandgraphsofyourspendingifthat’ssomethingthatgetsyoujazzedabouthandlingmoney.(Suggestionsforappsthatletyoucreatesuchrecordsappearattheendofthischapter.Thoughlet’sbehonest:ifchartsareyourthing,you’reprobablyalreadyworkingwithsomesortofintensebudgetingstrategy.)

Afterupdatingyourspendinginyourpreferredtrackingmethod(IlikeusinganExcelspreadsheetmyself),besureyouhaveanaccurateunderstandingofyourremainingbudgetfortheweekormonth.

Thenit’stimeforsomesimpleanalysis—whichiswherethoseonlinechartsandgraphscancomeinhandyifyouelecttousebudgetingsoftware.TheTrackingEveryPennybudgetnotonlypreventsyoufromoverspending,italsoenablesyoutonoticepatternsinyourspendingyoueitherdidn’tknowexistedorwanttofocusonchanginginlieuofredirectingthosefundstoothermoneygoals.

Thesimplestwaytoperformthisanalysisifyouaren’tusinganonlinetoolistocreatethecategoriesmentionedaboveanddoaweeklychecktoseewhethertheamountyou’respendingactuallyalignswithyourperceptionofhowmuchyouroutinelydishoutforthingslikegroceries,happyhour,orimpulsebuyingavideogameoranewpairofshoes.Youcanevengoastepfurtherandcreatesubcategories,suchas,inthefoodcategory,moneyspentongroceriesversusmoneyspentgoingouttoeat.

Iencouragedmyfirstpost-collegeroommatetoparticipateinthispracticewhenshewaslookingtofreeupsomeadditionalfundsinherbudgetinordertopayforyogateacher–trainingclasses.Withinaweekshecametomedumbfounded,saying,“Ispendnearly$20aweekbuyingbottledwater!”IthadbecomeamindlesspracticetobuyabottleofwateratalocalStarbucksduringherworkday,andthoseoverpricedbottlesaddedupquickly.Justcarryingaroundareusablebottleofwateratworkadded$80amonthbackintoher

aroundareusablebottleofwateratworkadded$80amonthbackintoherbudget.

TrackingEveryPennyshouldbeabudgetpracticeeveryonetriesatleastonceintheirlifetimebecauseit’sanilluminatingexperienceabouthowyoureallyspendyourmoney.Youcanpracticeallsortsofdelusionaltechniquesabouthowyouvalueeatingwellandprideyourselfononlymakingpurchasesyouactuallyuse,butwhenyounoticeyou’rebuyingtwopintsoficecreamaweekandyouneveractuallyreadtheUSATodayyoupayforeachmorning,well,maybeyourprioritiesandmoneyaren’tcompletelyinsync.

✓JUSTTHEBASICS:TheTrackingEveryPennySystem

Researchvarioustechniquesfortrackingeverypenny.Writingdownpurchasesandmatchingthemupagainstreceiptsmayworkforsome,whileothersmaypreferpayingforelaboratebudgetingsoftwarelikeYouNeedaBudget(YNAB.com)orutilizingfreeoptionslikeMint.com.Thisstrategyisworthlesswithoutanalyzingwhatyou’respendingyourmoneyon,sobesuretomarkdownwhatthepurchaseactuallywasandnotjustthecost.Trackingyourspendingbythepennywillenableyoutoproperlyaudityourspendinghabitsandfindwhereyoumayhavebeenunknowinglyhemorrhagingcash.Don’tgiveupifyouforgettotrackforaday.

TheEnvelopeSystemTheEnvelopeSystemistheCashDietsystemplusstructure.TheCashDietallowsforamoreflexiblespendingsysteminwhichyoucanbuywhatyouwantbuthavetogoonlockdownonlyoncethemoneyisgone.TheEnvelopeSystemdictateshowmuchyoucanspendincertaincategories.

Thiscanbedonedigitallyorwithphysicalenvelopes.Personally,Ifindthelattertobemoremotivating,butagainitispotentiallyproblematictokeepthatmuchcashstashedinyourhome.

Takesometimetositdownandwriteoutyourfinancialresponsibilitiesand

Takesometimetositdownandwriteoutyourfinancialresponsibilitiesandprioritiesintocategoriesthatwillbecomeenvelopes.Commonenvelopesincluderent/mortgage,utilities,transportation,cellphonebill,studentloans,otherdebts,food,petand/orkid,emergencyfund,retirement,andentertainment.

$Ihighlyrecommendthatyouarrangeforyoursavingsandretirementfundstobepulledoutofyourpaycheckbeforetheyhityourbankaccount.Thismoneyshouldbegettingroutedintoa401(k)or403(b)orsavingsaccountsothatyouaren’ttemptedtoignoresavingforamonth.

Oncetheenvelopesaredefined,it’stimetofundthem.Determinehowmuchmoneyoutofeachpaycheckshouldbegoingintoyourvariousfunds.Doyougetpaidbiweeklyandyourrentis$800?Then$400ofeachpaycheckgoesintotherentenvelope.

Theunderlyingprincipleistoneverborrowfromoneenvelopetobeefupanother.Onceyou’retappedoutinoneenvelope,thenyou’redonebeingabletospendinthatcategoryfortheremainderofthemonth.So,forexample,it’dbeagoodideanottoblowyourfoodfundtooearlyinthemonthonexpensivedinnersoutwithyourcrew.Theonlysituationinwhichthismaybeforgivenisifyoudecidetoskimoffthetopoftheentertainmentenvelopetothrowmoreatdebtorsavingsgoals.Leftovermoneycaneitherbekeptintheenvelopetoallowformorespendinginthecomingmonth,oritcanberoutedtoasavingsgoalordebtrepaymentorshovedinafunfundenvelope.

$Somepersonalfinanceguruswilladvise—orrathermandate—thatyounothaveafunfundwhileyouarepayingdowndebt.I’mamorepracticalmillennialwhowouldpreferyoudon’tyo-yodietwithyourfinances.Havingasmallfunfundyoucanusetomakeasplurgepurchaseorgooutwithyourfriends($50orlesseachmonthifyou’repayingoffdebt)sometimeswillkeepyoufromfallingoffthewagonandblowingyourbudgetoutofthewateroutoffrustrationathavingtoliveafun-deprived,hermit-likelifestyle.

TheTraditionalEnvelopeSystemThepre–InternetageversionoftheEnvelopeSysteminvolvedphysicalenvelopes—dothoseevenexistanymore?—stuffedwithcash.Youcancertainlystillpartakeintheold-schoolmethod,justlikeIdidduringthoseearlydaysinNewYork,butbewaryabouthavingtoomuchcashsittingaroundyourapartment.YoucouldalwaysdoaDigitalandTraditionalhybridinwhichyouwithdrawthemoneyyouneedeachweek,likewithaCashDiet,andputitinthecorrespondingenvelopes.Thismitigatestheriskofroommateswithstickyfingers,someonebreakingintoyourapartment,oryoujustbeingtotallyirresponsibleandmisplacingawadofcash.

TheDigitalEnvelopeSystemLookforanapporbudgetingsoftwarespecificallycateringtotheEnvelopeSystemstyleofbudgeting,likeMvelopes.

Themorehands-onapproach,ifyourbankallowsforit,istocreatesubcategoriesinyourcheckingaccountortojustcreatemultiplecheckingandsavingsaccounts.Eachaccountshouldbelabeledjustlikeitsphysicalenvelopecounterpart.

Youmaynothaveadebitcardforeachaccount,oryoumaynotwanttomanage10debitcardstomakesureyou’realwayspullingfromtheappropriatefund.Thismeansyouwillneedtobeproactiveabouttransferringbetweenaccountsorputtingitallonacreditcardandmovingtheearmarkedmoneyfromindividualaccountstotheonethatislinkedtopayoffyourcreditcard.Justbesureyouknowhowmanytransfersyou’reallowedtomakeeachmonth,becauseyoudon’twanttohavetostartpayingtomoveyourmoneyaround.*

Theremightevenbeaseparatedigitalversionyou’vefoundthatworksbestforyoubutthat’ssimilartotheEnvelopeSystem.Iencourageyoutodevelopyourownmethod,solongasitkeepsyouontrackforyourfinancialgoalsandyou’restilldiligentlysavingeachmonth.

THEISSUEWITHTHEENVELOPESYSTEM

Youneedabuffer.Thenotionthatallyourexpensesineachcategorystayfixedfrommonthtomonthisludicrous.Rollingoveryoursurplusfrommonthtomonthcanhelpmitigatethisrisk,but

youmayalsowantanentirelyseparateenvelopethat’sjustcalledbuffer.Thetrickisthatyoucanaccessitonlyfornecessities,notbecauseyourfriendswanttotakeacruisetotheBahamas.

✓JUSTTHEBASICS:TheEnvelopeSystemTheEnvelopeSystemissimilartotheCashDiet,butwithstructureabouthowmuchyoucanspendincertaincategories.Eachenvelopeislabeledforaspecificpartofyourbudget,suchasrent,studentloans,emergencyfund,pets,etc.Onceyou’vespentallthemoneyinanenvelope,thenyou’retappedoutforthemonth.Noborrowingfromoneenvelopetofundanother.It’spossibletodotheEnvelopeSystemdigitally,butyouneedtobeontopofyourgameifyouplantosegmentallyourmoneyintovariouscheckingaccountsorsubcategories.

BUDGET201OPTIONSTrackingeverypennyorstrictlyusingcasharegreattrainingwheelsforgettingfinanciallyempowered.Oneofthesebudgetingstylesmightstayyourpersonalpreferenceasyoupaydowndebt,trytohitsavingsgoals,orjustbecauseyoufinditeffective.However,youdon’thavetobetiedtoeitheroneforever.Asyoubecomemorefinanciallyfit,youmaychoosetoevolvetoalesstime-intensiveandstrictbudgetingstyle.

PercentageBudgetingOneofthemoreeffectiveandlessstringentbudgetingmethods—thepercentagebudget—oftenoutlinesthreemaincategoriesforyourcash:fixedcosts(50percent),financialgoals(20percent),andwantsorflexiblespending(30percent).

InaPleasantvilleversionoftheuniverse,thesethreegroupsareeasilyfundedonlybyyournetincome—thatis,afteryou’vepaidtaxesandcontributedtoyourretirementfund.Themoneythathitsyourcheckingaccountiswhatyouuseto

retirementfund.Themoneythathitsyourcheckingaccountiswhatyouusetofundyour20percentsavingsgoals,while50percentmorethancoversyourhousing,transportation,anddebtcosts,andtheremainderfundsyourday-to-dayliving.

Inreality,youmightbechucklingtoyourselfatthenotionofonlyspending50percentonyourfixedexpenses,especiallyifyou’resittinginanapartmentlocatedinamajorcity.Yourrentalonemightbe50percentofyoursalary,andthatdoesn’tincludepayingutilities,takingcareofyourtransportation,and,ofcourse,payingdownthosestudentloans.

TheidealizedversionofPercentageBudgetingshouldbeyourgoal,butinthemeantime,it’sfinetodevelopyourownreasonablepercentagesforthosethreemajorcategories.Reasonableisnotspending40percentonfixedcosts,55percentonflexiblespending,and5percentonmeetingfinancialgoals.Whenyoucreateyourownpercentages,it’salsoimportanttoreevaluatethemasyoupaydowndebt,progressinyourcareer,andincreaseyouravailableincome.Hereisanexample.

DwightlivesinNewYorkCityandearns$45,000ayear.Aftertaxesandhis401(k)contribution,Dwightearns$31,800ayearandgetspaid$2,650monthly.Hepays$1,350amonthforrent,utilities,andhisMetroCard.Anadditional$250amonthgoestowardstudentloans.Hisfixedexpensescosthim$1,600(approximately60percent).Hehasalreadyput7percenttowardhisretirementaccount,andhetucks$200amonthintoasavingsfundwiththegoaltohavesixmonths’worthoflivingexpensessetaside(approximately7.5percentoffinancialgoals).

Contributing20percenttosavingswouldleaveDwightwithonly$520tospendeachmonthonliving.Whilethisistechnicallydoable,Dwightpreferstoberealisticandputsapproximately7.5percentintosavings,leavingjustover30percent(or$850)forflexiblespending.

Whenhegetshisnextpromotionandraise,Dwightplanstokeephisfixedexpensesandflexiblespendingthesameandputthedifferencetowardfinancialgoals,thuschanginghispercentagestobetteralignwiththeideal.

✓JUSTTHEBASICS:PercentageBudgeting

Youshouldstrivetokeepfixedexpensesat50percentandsplittheremainderas20percenttowardsavingsand30percenttowarddailyliving.Adjustingpercentagestobetterfityourcurrentlivingsituationisacceptable,butthebudgetshouldbemodifiedasyoucontinuetoearnmore.Retirementcontributionsdon’tcounttowardthe20percentinsavings.Consideronlyyournon-retirementcontributionsandpost-taxincome—inotherwords,themoneythatactuallyhitsyourcheckingaccount.

Zero-SumBudgetingTheblackbeltofbudgetingtactics,theZero-SumBudgetuseslastmonth’sincometopayforthismonth’sexpenses.Itenforcesthenotionthatallyourdollarsshouldbeassigneda“job”andisthefoundationforthepopularbudgetingtoolYNAB(YouNeedaBudget),oneofmanybudgetingappsyoucoulduse.Thismethodistheonetolearnifyou’reacontractororfreelancerwithsporadicincome.

Usinglastmonth’sincometopayforthismonth’sexpensesmaysoundludicroustoyou,especiallyifyouhaveatendencytoborrowfromyournextpaycheckbeforeithitsyouraccount(usuallydoneoncreditcards).Thisiswhyyoucan’tjustswitchoverfromanotherbudgetingstyleorneverbudgetinginyourlifetosuddenlybeingflawlesswithZero-SumBudgeting.

TheZero-SumBudgetisoneofthemosteffectivewaystobreakthepaycheck-to-paycheckcycleaswellasaggressivelypaydowndebtandhitothersavingsgoals.

There’ssomethingempoweringaboutworkingthesestepsbyhand,sogogetanotebook—forreal—andapen.Let’sgettowork!

Step1:KnowYourIncomeForsalariedemployees,step1issimple:justpullyourpaychecks.I’dadviselookingatyouractualpaystubsoyouseehowmuchisleavingintaxes,howmuchisgettingroutedtowardretirementfunds,andhowmuchisactuallyarrivinginyourbankaccount.Forfreelancers,thisnumbercanfluctuatedrasticallyfrommonthtomonth.Youmayhavea$10,000Augustandthena$4,000September.Thisisonereasonusinglastmonth’sincometopaythismonth’sexpensesisawisestrategy;you’llneverbeprayingforoutstanding

month’sexpensesisawisestrategy;you’llneverbeprayingforoutstandingpaymentstomakeitintoyourmailboxorhityourPayPalaccount.Okay,that’snotentirelytrue.You’llalwaysbeonthehunt,butit’salessstressfulexperience.

Step2:CrunchYourBillsandLifestyleCostsSalaryorsporadicincomedoesn’tplayanintegralroleinthisstep.Youneedtositdownandwriteoutyourexpensesandtheattachedpricetag.Takemorethanafewminutestowritethislist.Infact,takeafirstpassandthenwalkawayandcomebacklater.Youprobablyforgotarecurringcost(likebuyingtoiletpaper)duringyourfirstpass.

Robinisa27-year-oldwomanworkingasareporterforalocalnewschannel.Here’swhathermonthlyexpenseslooklike,includinganestimateforfluctuatingcategorieslikegasandutilities.

Rent—$950Studentloans—$300Healthinsurance—$120Renter’sinsurance—$20Autoinsurance—$95Carpayment—$115Gas—$40Utilities+Internet—$75Cellphone—$85StreamingTVservices—$8.99(let’sbehonest,shestillusesafewofherex-boyfriend’saccountstoo)

Groceries—$375Householdgoods—$30Miscellaneousself-carecosts—$100(youknow,theshampoo/waxing/hairstylingproducts/makeup/facecreams/ladysanitarycare,etc.Thepinktaxisn’tcheap.)

Entertainment—$250Retirementcontribution—$200Emergencyfund—$150Robin’sgrandtotal:$2,913.99Robinearns$3,700aftertaxes,sothere’s$786.01leftunaccountedfor.It’stimetogivethosedollarsajob.

Step3:EmployYourDollarsOnceyou’vetakenalookatyourcurrentexpenses,it’stimetoassigneachdollarajobsoyou’respendingyourentirepaycheck.Thissoundsdelightfullyexciting,but“spending”alsoreferstostashingawaycashforthefuture.Robinwon’tbegettingapasstogo“TreatYoSelf”onmimosasandfineleathergoods.

Instead,herbudgetmayturnintosomethinglikethis(theasteriskeditemsarewheretheunemployed$786.01gotputtowork):

Rent—$950Studentloans*—$651.01(+$351.01)Healthinsurance—$120Renter’sinsurance—$20Autoinsurance—$95Carpayment*—$300(+$185)Gas—$40Utilities+Internet—$75Cellphone—$85Streamingservices—$8.99Groceries—$375Householdgoods—$30Miscellaneousself-carecosts—$100Entertainment—$250Retirementcontribution*—$450(+250)Emergencyfund—$150

NowRobiniszeroedouteachmonth.Shewillcontinuetopaymorethantheminimumdueonhercaruntiltheloanispaidoff,andthenthat$300canberedirectedtowardherstudentloansandsavingsgoals.

Step4:EvaluateYourSpendingCategoriesIntheRobinexample,she’sfortunatetohaveasurplus.Thismeansherbudgetcaneasilyberetooledtozeroouteachmonth,butinmanycasestheamountsowedeclipsethemoneybeingearnedeachmonth.

Ifyoucrunchyournumbersandrealizeyourbillsandgeneralcostsimperativetolifeoutweighyourcashflow,thenit’stimetoevaluateyourspendingcategories.Oneoftheeasiestwaystodothisistotrackexactlywhereyoureallyarespendingmoney.

Step5:TimetoGetYourPennyTrackerOnThePennyTrackerbudgetstylemaynotspeaktoyou,butit’sacrucialelementinbuildingastrongfoundationforyourZero-SumBudget.ThePennyTrackermethodshouldbeusedforonemonthminimum,buttwotothreemonthsisidealinordertoaccountforanypotentialoutliersfromyoursinglemonthofmonitoringtransactions.

ThePennyTrackeralsohelpsensureyou’restayingwithinyourpredeterminedlimitsforthemonth.Thisdoesrequirecheckingin,soitwouldbewisetohaveastandingdatewithyourmoneyeachweek,oreveneachnight,torunthenumbers.

Step6:PrioritizeYourCategoriesandTrimtheFatAmonthormoreoftrackingeverypennycaneasilyhelpyouhomeinonthoseproblemareas.It’sthefinancialequivalentoflookinginthemirrorandbashingyourselfforyourphysicalfeatures,exceptthisoneisarguablyhealthierifyou’reabletouseitasmotivationforchange.

Foodandentertainmentaresomeoftheeasiestcategoriestoslash—partofthereasonlattesandcablegetsomuchbadpress(literally)inthepersonalfinanceworld.

Ditchingcableordiligentlybrown-baggingyourlunchandforgoingadailycoffeerunwillcertainlypadyourbankaccount,if—andthisisabigif—youmaketheefforttore-routethefundsinanotherdirection.Forgoingonecostandthenfailingtoputtheadditionalmoneyinanotherbucketmakesthesacrificepointlessbecauseyouwillwindupspendingthatmoneyyousavedonsomethingelse.Forexample,youcantacktheextra$20aweekfromditchingacoffeerunontoyourmonthlystudentloanpaymentorincreaseyourmonthlyretirementcontribution.Youmightfallonyourfaceafewtimesinthebeginning,andthat’sokay.You’lllearnwhichareasneedalittlepaddingeachmonthtoensureyoudon’toverspendandwhichroutinepurchasesyoumaybeabletoeliminateentirely.

Now,ifyourelishyourdailylatteorcan’timaginelifewithoutESPNorknowingwhattheRealHousewivesareupto,nojudgment.Yousimplyneedtofigureoutanotherplacetoscalebackyourspending.

Thispracticeshouldhelpyoufocusyourmoneytowardwhat’sactuallyimportantinyourlife.Here’shopingit’spayingdowndebtandprotectingyourfutureselfwithconsistentretirementcontributions.

Step7:GetaMonthAhead

Step7:GetaMonthAheadNowthatyourdollarsareassignedjobstozerooutyourbudgetforgoodreason—notbecauseyouwentonaspendingspree—it’stimetogetamonthaheadsoyou’reusinglastmonth’sincometopaythismonth’sbills.It’stheentirepointoftheZero-SumBudget.

Youmaypullamonth’sworthoflivingexpensesoutofasavingsaccount;however,youshouldavoidraidinganemergencyfundtojump-startyourZero-SumBudget.Ifyoudousesavingstogetstarted,thenbesuretoquicklyreplenishthemoneyyouwithdrew.

Amonth’sworthoflivingexpensesavailableoutsideofanemergencyfundisaluxuryformanyamillennial,soifitfeelscompletelyunattainable,thenstartputtingasidealittleatatime.Thiscouldmeanittakessixmonthsbeforeyou’refullyonemonthahead—butyou’llgetthere.Nottomentionthatthepracticeofstayingwithinyourspendingcategories,trackingpennies,andtrimmingthefatstartingnowcouldpushyoutosavemoreaggressivelythanyouthinkisevenpossibleasyoureadthissentence.

Step8:AlwaysRuntheNumbersandAdjustAccordinglyThisbudgetishands-on,whichmeansyouneedtobecheckinginweekly,perhapsevendaily,asyouworktowardgettingamonthahead.It’simperativeyouknowexactlyhowmuchyouearnedlastmonth,soyoucanadjustyourcategoriesaccordingly.ThisiswhytheZero-SumBudgetisidealforfreelancersandhelpsdestroypaycheck-to-paycheckliving.

Justbesurethecategoriesyou’readjustingarethenon-essentials.Ifyou’remaking$1,000lessinJunethanyoudidinMay,yourentertainmentbudgetshouldbetakingthehitandnotyoursavingsordebt-slayingcategories.

✓JUSTTHEBASICS:TheZero-SumBudgetKnowyourincomefirstandthencrunchthenumberstodetermineyourcashfloweachmonth.Assigneachdollarinyourbudgetaspecificjob,sothatattheendofthemonthitzerosout—butthismeanssavingtooandnotspendingallyourmoney!

Yourgoalistoworktowardusinglastmonth’sincometopaythismonth’sexpensesinordertobreakthatpaycheck-to-paycheckcycle.

THERE’SANAPPFORTHATFinallywecometowhatyouwereprobablythinkingthroughoutthisentirebreakdownofbudgets:Isthereanappforthat?

Inmostcases,yes,thereisanappforthat.Infact,therearescoresofexistingpersonalbudgetingapps,andnewonesarebeingaddedallthetime.

Manyofthese—liketwoofthebiggestones,Mint.comandYNAB—providetheoptiontolinkyourbankaccounts,creditcards,andeveninvestmentstogetherinoneplaceinordertoanalyzeyourcashflowandyouroverallfinancialpicture.Theyaresimpleandeliminatetheneedforyoutoproactivelytrackdownthisinformationduringyourweeklyself-runbudgetaudit.Itsoundslikeasemi-lazy-but-striving-to-befinancially-savvymillennial’sdream,right?

Inmanyways,thesearehelpful.Butifyou’rethinkingofgoingtheapproute,herearetwobigpotentialissuestowatchoutfor:

1. Cashneedstobeupdatedbyhand:Youhavetomanuallyenterintotheappanythingyoupayforincash.Perhapsyoudon’tusecashandnevercarryit,butontheoffchanceitstillplaysaroleinyourlife,thenyou’llneedtotrackthoseexpendituresbyhand.

2. Cybersecuritybreaches:Readthefineprintbeforelinkinganapptoyourfinancialaccounts.Manybankshavestartedcrackingdown,sayingyouwillberesponsibleforlossesresultingfromlinkingathird-partyplatform(akaabudgetingapp)toyourbankaccount.Theappisalsolikelytoprovidefineprintstatingitisn’tliableforlossesduetoasecuritybreach.

Youshouldresearchandreadreviewsbeforechoosinganapp,investingyourtimeinsettingitup,and,perhapsmostimportantly,linkingyourfinancialaccountstoit.Thatdoesn’tmeanyouneedtoavoidallappsandbudgetsoftware,butbeproactiveaboutprotectingyourself.Setupalertsonallyourcreditcardstoletyouknowwhentransactionsoccur.Checkinonyourbankaccountsdaily.Maybeevenlinkonlyonecheckingaccountfromwhichyoudothebulkofyourspending,sothatifyou’rehacked,thelossismitigated.Itwon’tgiveyouacomprehensivenetworthoverview;thatmightbeworthdoingbyhand.

hand.

GOTAKEACTION!Beforeyoulosethatburningdesiretogetyourfinancialhouseinorder,youshouldprobablyputthisbookdownandsetupabudget.Thefirstoptionyoutrymightnotbethebestforyou,butatleastyou’retakingactionablestepstobreakfreefromtheshacklesofdebtandditchthatpaycheck-to-paychecklifestyle.

Alreadygotyourbudgetmojo?Giveyourselfagutchecktoseeifmaybeyoucanstepitupalevel.Forexample,IthinkI’mgoingtogorunsomenumbersforthatZero-SumBudgetI’vebeencreatingformyself.

Chapter5

PickingtheRightFinancialProducts(akaTheChapterinWhichThisBookPaysforItself)

“...ANDWE’LLGIVEYOUafreecreditscore!”Sadly,foramoney-lovingnerdlikemyself,itdidn’ttakemuchcreative

advertisingtogetme,atage24,tochoosethefirstfinancialproductIsignedupforthatwasn’tsimplyadefaulttowhatmymomanddadused.Untilthatpoint,Ihadbankedonlywheremyparentsdidbecauseitwaseasy,andthismaybewhatyou’vedonetoo.Afterabitofascareoverhavinga“thinfile”whenItriedtocheckmycreditscoreviaCreditKarma,theideaofgettingmonthlyaccesstoacreditscorewasenoughtogetmetoapplyforacreditcard.*

ButittookmetwomoreyearstoopenanewbankaccountbecauseIdidresearchinsteadofjuststickingwiththebankmyfamilyused.ThismovehappenedafterIrealized$10,000insavingscouldearn$100insteadof$1ininteresteachyearjustbyswitchingbanks.#WorthIt

Nomatteryourleveloffinancialknow-howandexpertise,wecanallgoonautopilotbyjuststayingwithwhatweknoworwhatourparentsusewhenitcomestoactuallypickingourfinancialproducts—checkingandsavingsaccounts,creditcards,andevenyourlendersforautoloans,personalloans,ormortgages.Forexample,itmademoresenseforourparents’generationtokeepbankingproductsinthefamilyasmostofthetimetherewerefeweroptionsavailabletothem,sotheycouldn’tshoparoundinthesamewaywecantoday.ButthankstotheInternetandthesubsequentriseofInternet-onlybanks,aswellasonlinecomparisontoolsthathelpyoufindtherightfinancialproductsforyou,youdon’thavetousefinancialproductsjustbecauseMomandDaddidorbecausethere’sabranchonyourblock.

Foragenerationrearedontheideaofbeingabletocomparisonshopwithafewtapsonourphonesorgettingproductsforcheaperonlinethaninbrick-and-mortarstores(thanks,Amazon),manyofusarestilloddlyfixatedonneedinga

physicalbanktostoreourmoney.*Thisproblemisthattraditionalbrick-and-mortarbanksoftennickel-and-dimeus,particularlywhenmoneyistight.You’lllearnmoreabouthowandwhythathappenslaterinthischapter.Evenifyouneverenterthebank,there’ssomesortofsafety-blanketnotionaboutitstandingthereproudlyinyourneighborhood,guardingyourmoneydeepinitsiron-cladvaults.Spoiler:yourmoneydoesn’tstaytuckedawayinthebank,butwe’llgettothatinabit.

It’stimetonixthissuperstitionforthesakeofyourwallet.There’snothingwrongwithstickingtotheold-schoolwayofbanking,butyoufirstmustunderstandthefinancialrepercussionsofthatdecision.Inthischapter,we’llwalkthroughhowtodetermineifyourcurrentfinancialproductsaretherightfitand,iftheyaren’t,howtofindabetteralternative.

✓SOMEBASICSTOKNOWWHENCHOOSINGFINANCIALPRODUCTS

MakesureyourbankhasFDICinsurance(thismeansyou’reprotectedupto$250,000shouldyourbankgounder).Youdon’tneedtopayunnecessaryfeesonacheckingorsavingsaccount,suchasmaintenance,annualfees,minimums,andoverdraftprotection.Therearewaystoavoidthosethatwe’llexploreinthischapter.Yoursavingsaccountshouldbeearninganinterestrateofatleast0.75percentAPY.Thecommonofferof0.01percentisajoke—bothyouandyourmoneydeservebetter.Creditcardrewardsareworthitonlyifyouavoidbothoverspendingandpayinginterest.Ditchcreditcardswithanannualfeeandfindacardthatrewardsyourregularspending,whichmightbeabasic,flat-ratecard.

UNDERSTANDWHATFDICINSURANCEMEANSBrowseabankbrochure(ifyou’vesteppedintoatimemachine)orscrolldowntothebottomofabank’sWebpageandyou’resuretofindthebank’snamefollowedby“MemberFDIC.”

followedby“MemberFDIC.”Ifyoucan’tfindthisstatementanywhereonthebank’spromotionalmaterial

orWebsite,thengetoutofthereor,morerealistically,clickoutofthebrowserasquicklyasyoucan.YoushouldbeputtingyourmoneyonlyinanaccountwithanFDIC-insuredbank,meaningitisinsuredbytheFederalDepositInsuranceCorporation.

WhyYouWantFDICInsuranceMostofthemajorbanks,especiallythe“namebrand”onesyou’dthinkofifaskedtonameabank,areFDICinsured.It’simportanttohaveFDICinsuranceinordertoprotectyourdeposits.Ifyouuseanon-insuredbankandthebankfails,thenyou’llhaveahard-to-impossibletimerecoveringyourfunds.

FDICinsurancealsodenotesamorereputablebankorcreditunion.Whybankwithaninstitutionthatdoesn’tprotectyou?It’slikedatingsomeonewhorefusestousebirthcontrol—youknowit’saterribleidea,evenifitfeelsgoodatthetime.

Youcanusuallyseeonabank’shomepageifit’sFDICinsured,butyoucanalsousetheFDIC’sBankFindtool:https://research.fdic.gov/bankfind.

WhatDoesFDICInsuranceCover?Thesimplewaytothinkaboutyourcoverageisthatitinsuresmoneyyou’vestoredawayinabankaccount,notmoneyyou’veinvested.Coveredaccountsinclude:

Checkingaccounts:Whereyoukeepyourdaily-usemoney.Savingsaccounts:Whereyoukeepmoneyyoudon’tneedrightaway(plus,youcanmakeonlysixwithdrawalsfromthisaccountpermonthbyfederallaw).Moneymarketdepositaccounts(MMDA):Basicallyachecking-and-savingshybrid.Theseaccountstypicallyearnmoreinterestthanacheckingaccount,buttherearealsorestrictionsonhowmuchyoucandepositand/orwithdraweachmonth.Timedepositssuchascertificatesofdeposit(CDs):Acertificateofdepositoffersyouahigherinterestrate,butyouhavetolockthemoneyupforapredeterminedperiodoftime.Takingitoutsoonermeanspotentiallypayingapenaltyandlosingsomeoftheinterestyouearned.Forexample,youmightearn1.50percentAPY—butyouhavetodeposit

atleast$1,000andkeepitintheaccountforaminimumoftwoyearstoearnandkeepalltheinterest.NegotiableOrderofWithdrawal(NOW)accounts:Truthfully,I’dneverheardofthistypeofaccountbeforewritingthisbook.However,it’ssimilartoacheckingaccountexceptyoulikelyearnahigherinterestrate,butyoumayhavetogivewrittennoticebeforeyoutakemoneyout—sometimesevenasmuchassevendays’.Cashier’schecks,moneyorders,andotherofficialitemsissuedbyabank:You’dlikelyneedthesetoprovethatyourcheckisgoodforthefundsonalargepurchase;forexample,sometimesalandlordmayaskforacashier’scheckforthesecuritydepositonyourapartmentwhenyoumovein.Basically,thesearelikethebankgivingtheofficialstampofapprovalthatthefundsaretheresothecheckwon’tbounce.

WhatDoesn’ttheFDICInsure?Thesimpleansweris:yourinvestments.Commoninvestmentsincludethefollowing:

Stock,bond,andmutualinvestments—allofwhichyoucanlearnmoreaboutinchapter15.Lifeinsurancepolicies.Annuities:Investedlumpsumsofcashthataremeanttoprovideamonthlystreamofincomeinthefuture,usuallyinretirement.Municipalsecurities:Inshort,abond(buyingofdebt)fromastateorlocalgovernment.Safe-depositboxesortheircontents:Theboxesstoredinbankvaultswherepeoplekeepvaluables.You’veprobablyseenthisinamovie.U.S.Treasurybills,bonds,ornotes.*

ImportantThingstoKnowAboutFDICInsurance

FDICinsuranceisautomaticallyguaranteedifyou’rebankingwithaninsuredfinancialinstitution.Youdon’tneedtosignuporsendinpaperworktogetit.In2016,you’reinsuredupto$250,000totalperbank(notperaccount).Creatingtwo$250,000savingsaccountsatthesamebankdoesnotmean

youget$500,000covered.Youcoulddeposit$250,000withoneFDIC-insuredbankand$250,000withanother,though,toget$500,000incoverage.Youcanlearnmoreaboutinsureddepositsathttps://www.fdic.gov/deposit/covered/categories.html.

There’snopointbankingwithaninstitutionthatfailstoprovideyouwithFDICinsurancewhensomanybanksareFDICinsuredsothatyou’reprotected.Wecertainlyhopebankswon’tfail,butyoujustneverknow.Sowhynotprotectyourselfandupto$250,000ofyourmoney?Ifyoufindoutyourbankisn’tFDICinsured,moveyourmoolahtoonethatis,anddoittoday.Youandyourmoneydeserveit.

CHECKINGACCOUNTS:TIMETODITCHTHOSEBANKINGFEESRaiseyourhandifyoueverpaidatleastoneofthefollowingforyourcheckingaccount:overdraftfee,non-sufficientfund(NSF)fee,annualfee,low-balancefee,monthlymaintenancefee(seriously—what’sthepointofthatonewhenwe’realreadylettingthemkeepourmoney?),orlost-cardfee.

Feelingalittlesmugbecauseyou’vemanagedtoavoidallthose?HowaboutanATMfee?Theoddsareyou’veprobablybeenhitbyoneofthese.Butifyou’rethinkingasmall$2.50ATMfeenowandagainisnobigdeal,thinkagain.Itcanbeexpensivetobankwithatraditional,big-nameinstitution.Thisisparticularlytrueifyou’realow-depositcustomer(youdon’thavelotsofmoneystashedaway),especiallyonewithatendencytooverdrawyouraccount.Luckily,youdon’thavetostaythere.I’llshowyouhowtoavoidallthesefeesgoingforward.

FeesYouShouldn’tBePaying

BANKACCOUNTS CREDITCARDSAnnualfee Annualfee

Maintenancefee ActivationfeeMinimum-balancefee Monthlyfee

OverdraftfeeOverdraft-protectionfeeEarlyaccountclosurefees

Lost-cardfeeATMfees

$AccordingtotheConsumerFinancialProtectionBureau,inDecember2015,banksearned11.6billion—let’ssaythatagain,11.6BILLION—dollarsinrevenuefromoverdraftandNSFfees.*1

Thefrustratingpartofthesefeesisn’tsomuchthattheyexist—banksarefor-profitinstitutions,afterall,sothey’vegottomakemoneysomehow—butratherthatthesecostsarebeingtriggeredb