We get it: Managing your finances is basically one of the most boring things ever, right up there with Bran’s story line in Game of Thrones or listening to someone describe the dream they had last night in great detail. But knowing how to take care of your money is an essential life skill everyone should have—so we got the lowdown from experts. Here, they share the top mistakes they see people make, and give tips on how to generally not be terrible at money.
"Building your emergency fund before paying off credit card debt is one of the worst pieces of advice you can take," says Sallie Krawcheck, CEO of Ellevest. "Credit card debt accrues the highest interest rates out there, and paying it down should be prioritized above all other financial goals. The math speaks for itself: Say you have $5,000 in credit card debt at an 18% interest rate. Say you happen upon $5,000 of money. If you split the $5,000 (half to establish an emergency fund, half to pay down credit card debt), you still have $2,500 in credit card debt and $2,500 of money sitting in cash. The $2,500 in credit card debt at an 18% interest rate costs you $450 a year. The emergency fund earns almost nothing in interest. So you're out $450."
"A budget is a cornerstone for all your personal finances," says Tiffany Aliche, author of The One Week Budget. "Without a budget, it’s hard to achieve other financial goals."
Tiffany's guide to creating a basic budget in three steps:
1. Make a list of all your expenses (bills, entertainment, groceries, grooming, etc.). This is your Money List.
2. Write down how much each expense on your Money List costs per month.
3. Add up your Money List and subtract from your paycheck.
"Even more important to your credit score is your payment history," says Stacy Wakefield, VP of Credit Sesame. "Payment history accounts for 35% of your credit score, and late payments can be detrimental to your credit rating. Among members with poor credit scores, 11% of debt accounts are currently delinquent—at least 30 days late. The delinquency rate for those with excellent scores is substantially lower, at 0.18%."
"Get into the habit of paying your bills on time, every month," Stacy says. "Late payments can linger on your credit report for seven years but they begin to lose some of their sting after the first two years. While making timely payments doesn't erase past late payments, a positive payment history can help turn a low score around over time."
"Don’t let politeness—or shyness, or embarrassment or anything else—get in the way of getting the information you need to understand your finances," says Sallie. "And keep asking until you understand. It's your money, and your right. If you are working with an adviser who won't give you an explanation that you understand, it's not you, it's him or her. Move on."
"It can be tempting to put off saving money, especially when you're just starting out and not earning much," says Jennifer Barrett, chief education officer at micro-investment app Acorns and editor in chief of its online magazine, Grow. "But time is one of the greatest advantages you have when it comes to building wealth."
"Even if you're only able to set aside a few dollars a week to start," she says, "it's important to give your money enough time to grow so you can benefit from compounding—when your earnings start generating earnings. Equally important: getting into the habit of saving and investing some of every paycheck. As you earn more, you can save and invest even more."
"Emotional spending can leave your bank account in shambles," says Tiffany. "It’s hard to control impulse buys when you're out, but you can minimize their negative financial impact. Leaving your credit card and debit card at home is a great way to curb your spending. When heading out, grab some cash. Cash sets a hard limit on what you're able to spend."
"Women tend to be more risk-aware in our investing," says Sallie. "While this may sound counterintuitive, our longer lives—and the fact that we retire with two thirds the retirement savings of men—can call for somewhat greater, but still prudent, risk-taking, for the potential to earn a higher return. If the market goes down, our greater longevity may actually give us more time to recover."
"Debt collectors can be scary, but avoiding them makes it even worse," says Tiffany. "The best way to get over your fear is to arm yourself with knowledge."
Some key things you should know about, according to Tiffany:
The Fair Debt Collections Act: Fifteen laws protect consumers from unfair debt collection practices.
Cease and Desist Letters: Send one of these if you want a creditor to stop calling you at home, work or via cell phone and you want to communicate only via mail.
Debt Verification/Validation Letter: This is proof whether the collection company owns the debt or has been assigned the debt.
The Statute of Limitations on Revolving Debt (Credit Card Debt) in Your State: This is the maximum time limit for a creditor to file a lawsuit in federal court to claim an outstanding debt against a debtor.
"Family and friends can really deter your financial goals with their requests," says Tiffany.
Her tips for managing social-financial expectations:
1. Budget for asks (birthday parties, movie nights, etc.).
2. Create and connect with your money team: the people in your life that help you make financial choices or are most affected by your financial choices. Connect with them regularly and update them on your goals and progress. When people know your goals, they're more likely to understand when you say no.
3. Learn to say no creatively. Saying no is not fun or easy, but share that you're not saying no to their request, you're saying yes to your financial goal. For example: "I'd love to go to brunch, but I'm saying yes to Paris in a few weeks, so I have to save."
"Having a well-diversified portfolio is key to being a successful investor," says Jennifer. "But a lot of people don't understand what diversification means. Investing in both stocks and bonds is a start. But you also want to make sure you have US and foreign, large-, mid- and small-cap stocks in a variety of sectors, and both government and investment-grade corporate bonds with varying maturity dates."
"Fortunately, there are simple ways to accomplish that without having to handpick a bunch of stocks and bonds," she says. "Investing in index and exchange-traded funds, which are low cost and diverse, is an easy way to make sure you're diversified. This is what Acorns and other investing apps do."
"Waiting until a less risky time to invest—or procrastinating—is a mistake," says Sallie. "'Gee, the market feels iffy.' Or 'I feel like I need to get through that stack of reading on the markets.' Or 'I’ll find time later. Really, I will.' If you want to, you can find many reasons to wait to invest. But timing the markets is almost impossible, even for people who do it full-time. Investing steadily over time may help to smooth out the market ups and downs and is historically a vastly better alternative to keeping your money in cash."
"Besides, investing shouldn't be a one-time, right-or-wrong thing," she says. "Instead you should invest steadily. That means sometimes you’ll buy low and sometimes you'll buy high; it may even out."