We hear the same rules of personal finance again and again. Save up three to six months of expenses into an emergency fund. Pay off “bad” or “high-interest debt” first. Make more money.
It’s one thing to know what your finances should look like. It’s another thing to know what steps to take to achieve your money goals.
For this knowledge, we looked to personal finance guru Ramit Sethi for golden nuggets of wisdom. When Sethi wrote his New York Times bestseller I Will Teach You to Be Rich in 2009, it was during the height of the Great Recession. The general population sorely needed a fresh look on money. Here’s some happy news: A fresh, updated edition of this book was recently released. Sethi provides an easy-to-read, relatable primer on basic money management. He also offers insight on how to grow your wealth.
We delved into the updated version to offer up five of Sethi’s top tips. Take a look.
1. Avoid bank fees like the plague
Your bank shouldn’t be putting you in the poorhouse. Instead, your bank should help you save money. But according to FDIC data, big banks collected $11.45 billion in overdraft and non-sufficient fees in 2017. The truth hurts: Most banks charge $35 per overdraft fee.
Sethi says he is “fanatical” about having a bank account that doesn’t charge fees of any kind — no monthly maintenance fees, setup fees, or overdraft fees. And I’m 100 percent with him. Like Sethi, I also avoid banks with fees. If you’re a Chime member, you too can rest assured that you won’t be charged fees of any sort.
2. Automate your money flow
Sethi talks about how important it is to set up what he calls an Automatic Money Flow. This is when you link up all your accounts, and then set up automatic transfers on certain days. You can schedule transfers for both payments and savings. And, ideally you should try to sync up your bills with the days you get paid.
For freelancers and gig economy workers, Sethi recommends saving during your flush months, and spending from your savings when you’re having a lean month.
You can think of it as water running through different systems in your “money house” to keep everything running smoothly. What’s more, this system will help you save a reserve of money and have some cash set aside for your goals. Yes, it requires some thought and setup work, but after that, all you have to do is monitor your accounts every so often, and make tweaks as needed.
3. Set up auto-savings
Throughout the book, Sethi talks about different ways you can automate your savings. For instance, you can set up an auto transfer directly from your paycheck into a 401(k) account. Or automate your investments. And of course, you’ll want to automate your savings for big money goals. If you’re a Chime member, the Save When I Get Paid feature allows you to save a percentage of every paycheck.
4. Know your why
Another takeway from Sethi’s book is not to live in a spreadsheet. In other words, don’t get too caught up in the numbers as it’s important to remember why you’re managing your money in the first place. He calls it “street-level motivation.” For example, how can your money management skills help you live a richer, more fulfilled life based on your own vision? Do you want to afford a massage every so often, or maybe take a ride share instead of the bus? Make a note of your “why.”
5. Start small
Taking small steps toward reaching your financial goals will pave the way toward major in-roads. As Sethi points out, it’s far more important to take small steps today than wade through an exhaustive litany of literature out of fear of making the wrong choice. I get it. In this day and age, we’re faced with more options than ever — from which bank is best for you to which money-saving app to use.
Keep it simple
Sethi’s book outlines ways to set up a money system designed to help you live a richer life defined by your values, preferences and goals. At the end of the day, once you set yourself up, you’ll spend as little time and energy thinking about your money as possible.