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Monday, April 15, 2019

Root for Growth's Top 5 Personal Finance Tips


When people think of dealing with their finances, they may think, "Ew, gross." Some people might even prefer to stay in the dark when it comes their finances because they're scared to face how bad it might be. Others would rather not be bothered by it because they're just too lazy to figure it all out. If you're one of those people, I'm calling you out: that's a terrible stragety and it can get you into a ton of financial trouble.

I know it might be tedious, annoying, and stressful to get started, but you know what else is tedious, annoying, and stressful? Having creditors come after you, not being able to apply for a place to live or a loan because of your low credit score, and trying to figure out how you're going to pay for your bills. (I've heard it's even worse.)

So, how do you take a step towards financial stability? The biggest step is with financial literacy. You can do that by reading personal finance books and blogs and/or taking a financial literacy course. And, yay! You've already taken a step towards your financial future by reading this blog post because I'm going to share with you guys Root for Growth's Top 5 Personal Finance Tips.


1.) Budget.


Budget the heck out of your finances. I know how gross this step is but you need to make sure you're not spending over what you make. And, I promise once you get in the groove of it, you won't hate it as much.

To start budgeting, you need to find out how much you make per month. Then, start implementing the 50/30/20 rule. I've mentioned this in A College Student's Career Guide: How to Negotiate Your Salary, but I'll briefly explain the 50/30/20 rule.

50% of your monthly income goes to your needs, meaning groceries, insurance, housing, bills, etc.
30% of your monthly income goes to your wants, like your shopping, eating out, and hobbies.
20% of your monthly income goes to your savings.

If your necessities take up more than 50% of your monthly income and aren't okay with it, there are a couple of things that you do to disrupt the status quo.

a. Make more money.


Different ways to get more moneys are:
  • Get a job that pays more. If you choose to go with this route, make sure you negotiate. My post A College Student's Career Guide: How to Negotiate Your Salary tells you a step-by-step guide on how to do this.
  • Ask for a raise. You can use the negotiation blog to help you come up with a number. The steps are similar, but the only difference is that you have a history for with the company. So, make sure you mention how you brought value to your company. Eight managers give their advice on how to ask for a raise in this Forbes article
  • Work overtime.
  • Freelance your work. If you like writing, graphic designing, editing and proofreading, data entry, marketing, or tutoring, you can freelance. There are several websites you can market your services like Fiverr.com, Upwork.com, LinkedIn.com, Freelancer.com, PeoplePerHour.com. Please note: you can freelance more skills that you have than the ones that I listed. 
  • Build a side hustle. This is super broad for a reason. You can literally build a side hustle doing anything. Blogging, dropshipping, print-on-demand, Amazon FBA, designing graphics and selling them on Etsy, selling on eBay, selling concert tickets, network marketing, consulting, real estate, etc.
  • Drive for Uber or Lyft. If you like driving and love meeting new people, this is probably the thing for you. When I spoke to Uber and Lyft drivers, they mentioned that they could make their own hours.

b. Reduce your expenses.

Source

There are several things you can do to help you reduce your expenses like:

  • Get a roommate to help you pay the rent/mortgage and utilities if that's not already included in the rent.
  • Find a cheaper place to live.
  • Live with your parents. Will you or they be happy about it? Not sure, but you can give it whirl!
  • Find a cheaper cellphone plan.
  • Hop onto a family cellphone plan with someone and split the bill.
  • Cut out "luxury" bills, like your Netflix account or Spotify account.

c. Communicate with your creditors.


If your credit card bills are the ones that are killing you, you can actually negotiate your credit card bill from lowering your interest rate, lowering your monthly payments, and changing your payment due date (NOLO). I know I had no idea we could do this until I was researching for this blog post because you know I want to give you valuable, useful content.

d. Reach out to your student loan servicer.

For you recent graduates or almost recent graduates, student loan debt is no joke in the United States. So, it's possible that your student loan bills are the ones that are burdening you the most. If you find you're having trouble paying them back, there are a couple of options to look into such as, changing your repayment plan, consolidating your loans, and/or forbearance or deferment for your federal loans (Credit Karma).

Student loan talk glossary:
Repayment plan: how you choose to repay your loans back
Consolidate: putting your separate loans all into one big loan
Forbearance: an option to delay paying back your loan but is still accruing interest during the delay
Deferment: an option to delay paying back, unlike forbearance, it would not accrue interest

2.) Pay everything with a credit card and pay off full.


If you don't have a lot of money, at least have a high credit score. Good credit is so beneficial. You'll get the best interest rates, better chances of getting approved for loans and credit cards, and more likely to get approved for rental houses and apartments (TheBalance).

To get good credit, it's actually pretty easy. Make sure you pay your bills on time, have a mixture of loans and credit debt, have a good debt-to-credit ratio, have a long credit history, and use your credit cards. This brings me to my point - pay for everything with your credit card and pay it off in full.

This actually has other benefits other than a higher credit score. You can track your budget, too! Instead of swiping your debit card and not know how much money you're spending, swipe your credit card and physically see how much money you're spending. And, if you get cash back on your purchases, even better because you can use the cash back to pay for your bill or you can save it for something really nice.

Not only that, I prefer credit cards as opposed to debit cards because it's much more secure. If a fraudulent charge were to occur on your account, credit card servicer has your back way more than a bank does. It's easier to deal with and your actual money isn't being stolen.

I use my Discover card for all of my purchases. I get unlimited 1% cash back bonuses on all of my purchases and 2% cash back for gas stations and restaurants for up to $1,000 in purchases. They also match your cash back at the end of every year. Plus, it's sexy. And, if you sign up with this link, you'll get $50 cash back if you purchase something within the first 3 months of having it: http://refer.discover.com/s/44maah. #shameless

Please note: this is a student credit card so it won't work for those who aren't students. Also, this tip only works if you don't have any credit card debt. First, work on dealing with your credit card debt, then try this out if you choose to do so.

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3.) Pay off your highest interest loan first.

There are different strategies to go about paying off your loans. The strategy I suggest is to pay off your highest interest loan first. You save more money that way. Let's do the math so you can see:

Paying the highest interest loan first:
Highest interest loan: $10,000
Annual interest rate: 12%
How long it takes you to pay the loan: 5 years
Interest accumulated: $6,000
Total of how much you will pay: $16,000

Lower interest loan: $5,000
Annual interest rate: 7%
How long it takes you to pay the loan: 10 years (Let's say it takes you another 5 years to pay off)
Interest accumulated: $3500
Total of how much you will pay: $8500

How much you will pay altogether: $24,500

Paying off the lowest interest loan first:
Lower interest loan: $5,000
Annual interest rate: 7%
How long it takes you to pay the loan: 5 years
Interest accumulated: $1750
Total of how much you will pay: $6750

Highest interest loan: $10,000
Annual interest rate: 12%
How long it takes you to pay the loan: 10 years (Using the same assumption as above).
Interest accumulated: $12,000
Total of how much you will pay: $22,000

How much you will pay altogether: $28,750

As you can see, even when your lowest interest loan is your lowest balance, you end up paying $4,250 more than if you were to choose to tackle the higher interest loan first. Although, if you don't mind paying more and would make you feel more accomplished to get debt off of your plate, then feel free to pay off your lowest interest loan instead.

But, let's do another example where the lowest interest loan that has a $16,000 difference.

Paying the highest interest loan first:
Highest interest loan: $8,000
Annual interest rate: 9%
How long it takes you to pay the loan: 5 years
Interest accumulated: $3,600
Total of how much you will pay: $11,600

Lower interest loan: $24,000
Annual interest rate: 5%
How long it takes you to pay the loan: 10 years
Interest accumulated: $12,000
Total of how much you will pay: $36,000

How much you will pay altogether: $46,600

Paying the lowest interest loan first:
Lower interest loan: $24,000
Annual interest rate: 5%
How long it takes you to pay the loan: 5 years
Interest accumulated: $6,000
Total of how much you will pay: $30,000

Highest interest loan: $8,000
Annual interest rate: 9%
How long it takes you to pay the loan: 10
Interest accumulated: $7,200
Total of how much you will pay: $17,200

How much you will pay altogether: $47,200

Even in this scenario, you still save $600 dollars. It's not much more, but you still save more even if your lowest interest loan principal balance is significantly higher.

4.) Pay yourself first.

Remember, you are more important than bills, clothes, food, etc. You should be your utmost priority, so why aren't you paying yourself first when you get that paycheck? Put aside some money in a savings account as soon as you're paid. You can even set it up automatically, so, you don't even need to think about it.

A lot of people may think, "But, Donna, I need that money!" Let me tell you a secret: Once it's out of your account you don't even notice. You learn how to work around it.

If you tend to dip into your savings account just so you have more spending money, make it harder for you to do that by having your savings account in a separate bank. Preferably an online bank because if you try to withdraw money, then you'll have to pay those ATM fees. And, like, who wants to pay that extra 3 dollars?

5.) Set-up autopay on your accounts.

You remember how I told you that there were a lot of components to your credit score? Well, here are the exact percentages of what makes up your credit (courtesy of CNBC).

Credit Score Growth and Credit Score Tips and Credit Score Raise and Improve your Credit Score


Notice how the biggest factor and most important factor is your payment history. In other words, do you pay your bills on time? If you do not pay your bills on time, it can significantly bring your credit score down. To avoid that, I highly suggest to set-up autopay on all of your accounts. That way, you won't ever miss a payment and keep your credit score afloat. Not only that, some loans even lower the interest rate for setting up auto payments!

Thank you for reading! If you found this post helpful, share it with your friends on Facebook, and/or Twitter. I would love to hear your thoughts and any of your personal finance tips down below in the comments. As always, I'm rooting for your growth.

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With love and positive vibes,
Donna


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