Where should we learn how to handle money? School. But we don’t.
Instead, what you know — or don’t know — about finances stems from a number of factors: how you were raised and what you learned from friends, financial advisers, a spouse, random Internet searches, and so on. Which leads to money habits that aren’t ideal.
So we talked to the pros to find out what you should have learned in school. Here’s what they said.
Learn: How to Think About Money
Many people have complicated feelings about money — from being intimidated by it, to associating wealth with being greedy, to hating it. This can lead to the thinking that finances shouldn’t be a priority.
In order to change your attitude from apathetic or apprehensive to proactive, you must first understand your emotions and preconceived feelings. “We pick up emotional messages about money from a very young age — long before we understand what money is,” says Tana Gildea, CFPR, CPA, and author of “The Graduate’s Guide to Money.” Ask yourself: “How do you feel about money? About your ability to earn it, save it, manage it wisely? If you don’t feel positive, you are not going to have a very positive experience in your financial life,” she says.
The goal is to get to a place where you actively care about finances and don’t feel a sense of guilt for doing so. “You must control your money on a constant, day-to-day basis, and once you start doing this, you should never stop,” Daniel Trezub, founder of SaveWithDan.ca, says. “The feeling of being in control of your money and your life is priceless.”
Learn: How to Talk About Money
Of course, talking about money — with a spouse or a parent, for example — is often harder than thinking about it. But it must be done. Money communication expert Syble Solomon, who’s a member of the Financial Therapy Association, says that most couples talk about money only when they’re in crisis situations, if at all.
Instead, learn to regularly discuss money so it becomes less taboo, frustrating, or fight inducing. “Many couples who are successful with their finances set a regular ‘money date’ once a quarter,” she says. “Planning a quiet evening over a relaxing dinner or coffee and dessert is a good start. It beats trying to talk about your spending right after fighting about the credit card bill.”
Talking about money with family — as parents age, for example, you may find yourself discussing finances with them or your siblings to figure out caregiving options — might not happen as often, but it requires the same thoughtfulness.
“In families, financial conversations can get heated and judgmental, with one person feeling he or she is right and someone else is stupid or incompetent or irresponsible,” Solomon says. “Think of the acronym HALT, as in, don’t try to have a money conversation when someone is hungry, angry, lonely, or tired. And avoid numbers and legalese — at least at first. Instead, start getting comfortable talking about finances in more general terms.”
Learn: How to Live Within Your Means
To really live at a level you can afford, you have to modify your lifestyle slightly and live below your means. “This is really the key to financial success,” says Deana Arnett, CFP, CRPC, senior planning consultant at Rosenthal Wealth Management Group. “There are so many ways to live comfortably without spending every penny, but this lesson eludes so many.”
“Look at your budget and spending habits as a project that requires ongoing monitoring and occasional adjustments,” says Chantel Bonneau, a financial advisor with Northwestern Mutual. “For example, if you keep tabs on where your discretionary spending is going, you can evaluate how to reallocate some of that impulse or unnecessary spend toward saving for a meaningful goal like a down payment on a home or a great trip. Hold yourself accountable with an app, a journal, an accountability partner — whatever works to keep you on track.”
Living below your means might mean finding fulfillment from things that money can’t buy, or buying a used car, a smaller house, and clothing from the sales racks. But it could also mean spending less on the little stuff, says Jason R. Hastie, CPA and author of “The Dollar Code.” “How many times do we stop for a latte, forget to pack a lunch, or grab a couple of extra things while standing in line to pay at the register?” he asks.
Learn: How to Budget Better
“Most people equate the word ‘budget’ to crash dieting, where you’re sacrificing your short-term comfort and denying yourself specific pleasures,” says financial planning coach Mindy Crary. “In both cases, the ultimate goal of financial or physical health might not be enough to sustain the denial cycle.”
Instead, Crary suggests looking at a “balanced budget” the way you would a balanced diet: Managing your money effectively is a lifestyle, not a quick fix.
A strategy for staying on track — and not feeling deprived — is to budget month to month. In fact, money disorder expert Chellie Campbell, author of “From Worry to Wealthy,” suggests having three budgets — low, medium, and high — and deciding at the start of each month which one you’re on.
“Low budget is if you are making less money or saving for something special like a down payment on a house or a car,” she explains. “Medium budget is the money you’re making right now and how you’re spending it, and high budget is your dream budget (when more money is coming in). Anyone can do low budget for a month — it’s when you think you have to do it for a lifetime that people give up.”
Learn: How to Prioritize Your Spending
Identify what truly matters to you when it comes to how you want to spend your money, says Gildea. “Maybe it’s your living space, traveling, going out to concerts — make sure you plan for that first,” she says. “If you rent an expensive apartment, you’ve made the decision that a bunch of your income is going toward your living space — make sure that is truly what is most important to you.”
If you feel like you’re not spending your hard-earned cash in a way that’s making you happy, start paying closer attention. One way to help you spend wisely — and make sure your budget and goals match your spending actions — is to have two spending accounts: one for necessities and one for discretionary spending (a.k.a. needs vs. wants). This way, you can keep better track of the fun stuff and make sure you’re spending money where you want to.
Learn: How to Save Smarter
Don’t just save for the sake of saving as much money as you possibly can. “Put your financial goals in context first so you understand exactly how all of your savings today translate into funding those future goals,” Crary says.
Her advice: Get clear goals first, and then build a plan around them. “You don’t know whether you’re succeeding — or failing — at saving until you put all your financial goals in context,” she explains.
Another pro saving tip? Don’t forgo a rainy-day fund — which, for the record, is not synonymous with emergency savings. “Rainy-day funds are for HVAC emergencies, root canals, brake jobs, the summer camp you forgot to register for — the stuff that is expensive and happens a couple of times a year,” says financial planner and advisor Lori Atwood, RFC. “If you have some money put away, you do not have to charge the repair and get on an endless spiral of revolving debt.” Atwood suggests that families living in urban areas should have $3,000 tucked away for a rainy day fund, while singles or couples renting homes should save $1,500.
Learn: How to Save for Retirement
Many people use the “set it and forget it” approach to their retirement savings, says financial planner Mina Ennin Black, founder of WealthEssentials Money Management, RIA. “People start a new job, eventually get around to joining the company retirement plan, and when they do, they choose the simplest investment options and never go back to review (them) again,” she says. “This could lead to trouble later on, especially if you don’t know what’s in those funds.”
Start by being more proactive about your retirement account. “Investing in the stock market might sound like something you don’t want to deal with,” says Alisa Wilke, managing director of product development for SALT, a financial education resource for young adults. “The main thing to do is make sure you diversify your investments to lower your investment risk. You shouldn’t over-invest in any one sector — like technology — or in any single investment style, such as growth stocks or value stocks.”
One easy way to get the investment ball rolling? “Most 401(k) plans offer what are called ‘target-date’ mutual funds based upon the year you predict you’ll retire. These funds essentially create a diverse portfolio for you,” Wilke says. “They automatically adjust their investments over time. When you’re young and retirement is far off, they’re aggressive. As you get closer to your retirement date, your target-date fund will get more conservative.”
And if you’re not even taking advantage of your 401(k) — and your company matches — you need to get on this ASAP. “Many people overlook the simplicity and impact of participating in an employer’s 401(k) match,” Bonneau says. “If you’re not taking advantage of an employer match, you have to save significantly more later to make up for the match and the deferred growth.”
Learn: How to Keep Track of Money
As with many things in life, your relationship with money — and how you track it — is very specific to who you are. Don’t just jump on the latest financial bandwagon or trendy app, or use a money platform you’re “supposed” to use but don’t actually like.
Instead, Atwood suggests “finding money habits that suit your personality” to ensure that you’ll stick with them. “You are either are good with coupons or you’re not. You’re either good with apps like Mint or you’re not,” she explains. “If you need to change who you are to use an app, a store program, a points credit card, forget it. Everyone needs to track their spending in certain categories — full discretionary and groceries, usually. Find a way to track that fits you, so you stay with it. That’s the goal.”