Top 10 Personal Finance Tips That Everyone Needs to Know

Millennials, for the most part, are a savvy bunch. We are the most educated generation to date, but we also have higher levels of student loan debt, poverty and unemployment, and lower levels of wealth and personal income than our two immediate predecessor generations (Gen Xers and Boomers) had at the same stage of their life cycle.

There are a number of reasons for this, including rising costs of education, the Great Recession (2007-2009), and changes in the workforce. Given that, here are my top ten financial tips and easy wins to get ahead financially today.

1) Have an Emergency Fund

You can’t predict an emergency, but you can prepare for one. Emergencies happen to everyone and statistics show that less than 40% of people have enough money to cover a $1,000 setback with their savings. This can set you back both mentally and financially without having an emergency fund in place.

The good news is you do not need as large of an emergency fund as you may think. Even having a $1,000 saved up to start in a separate bank account can make a big difference. Over time I recommend increasing this to two month’s worth of salary and then using what I like to call “springy debt” to cover anything larger. Springy debt is debt like a line of credit that you can easily access to cover a large emergency but can be paid back easily with your savings rate. Chances are though if you have an emergency fund that will cover over 95 percent of emergencies. Wealthsimple has one of the highest interest rates on their savings account if you’re looking for a place to start an emergency fund. For more, see my article Best High-Interest Savings Accounts in Canada.

2) Minimize Expenses

This may seem simple enough but even saving an extra $100 per month can reduce the time to retirement by a few years. Adopt the 80/20 rule for your finances. This is where can you spend 20% of your effort to get 80% of the results. The big three expenses to focus on for the biggest financial savings gains are:

  • Housing
  • Automobiles
  • Food

The biggest expense for most people is housing, whether that’s rent or mortgage payments so if you can save a few hundred dollars a month off that you’re already ahead. If you can, either move to a cheaper place or get a roommate. Another alternative is to move back in with your parents (there’s nothing shameful about that!) until you’re better off financially.

The second biggest expense for people is their car. First, determine if you need a car or if you can get by on ride-sharing services or public transit. If you do need a car, I’m a big advocate for buying used, but if you do buy new, drive that thing as long as you can after you’re finished with the car payments. This way you’re getting the most value out of it and can invest the money you are saving on the car payments. Also, consider moving closer to work. You’ll save on the wear and tear on your car, time, and gas which adds up over time not to mention if you assign a dollar value for your time, you are saving life’s most valuable resource: time.

Third, focus on food. Millennials eat out more often than any other generation whether using food delivery services, buying coffee, or going out. Even packing one meal a day or bringing your own coffee to work can have a big impact on your savings rate. For example, saving $5 a day is $150 a month, $1,800 a year, and $31,021* over 10 years invested in the stock market index.

*assuming a market return of 9.7%.

3) Have a Budget

This is easier said than done. I’m an advocate of having a split between spending and saving. What that split consists of is up to you and what you are comfortable saving. For example, if you want to save 30% of your income, you know you can spend 70%. To know how much you want to save to reach your retirement goals, first determine your net worth. Your net worth is your total assets minus your liabilities. Or in other words, your cash, real estate, investments, and any other material possessions, minus your debts. Once you do that exercise you’ll know where you stand financially and can work backward how much you want to retire and by what age. Know that each percentage point that you can add on to your savings rate can reduce the length to retire by a year or more.

Once you have a savings goal, as long as those metrics are met then you don’t have to spend too much time tracking. The biggest time investment is tracking where you’re currently spending the most money and then adjust accordingly to meet your savings goal. Over time you’ll generally know how much you have to spend and to save without having to check your spending multiple times a day. To help you get started there’s plenty of services that specialize in budgeting so find one that works for you. I recommend Mint, Personal Capital or You Need a Budget.

4) Pay Off Credit Card Debt

This is the biggest return you can make. No other investment gives you a 19.99% return back just by making a payment. Start by making more than the minimum payment each month. If you have a cheaper form of debt like a line of credit, use that to pay off your credit cards to save on the interest payments.

5) Have a Side Hustle

There is a limit to how much you can save, but there is no limit to how much money you can bring in on the side. You can make extra cash for a specific purpose, for a sustainable and ongoing source of income, or replace the income from your current job.  The difficulty is determining what kind of side hustle you want to do, and whether you want it to be a product or service. There are pro’s and con’s to each so first do the following:

  • Create a list of ideas whether it’s a product or a service
  • Rank them on:
    • Feasibility: This is an idea you can start right now using the skills, time, and resources you already have
    • Profitability: Your idea has to have the potential to make money. If there are too many steps involved, chances are it requires too much work to be profitable.
    • Appealability: Would other people be interested in your idea? Liking your idea is not the same as buying your product/service. When someone says they like your idea, the first question you should ask them is why? Ask five why’s and you are closer to finding out if they like your idea or they are being nice.
  • Focus on high-potential ideas. These are simple to execute, do not take a lot of time to maintain, and has the potential to be scalable.

Generally, a product is more scalable but starting a service is faster to implement and has less risk involved. Start small, test your product idea, and then scale up if you’re getting positive feedback and results.

For more on side hustles check out my other articles: Consider Starting a Social Business Side Hustle, Why You Should Consider a Drop Shipping Business, and How to Build a Scalable Side Hustle. I also go into more detail on how to create ideas and execute them in my book.

6) Have Insurance

A lot of insurance products are a waste of money, but you should have insurance if the event has the potential of ruining you financially. Examples are homeowner’s/renter’s insurance, health insurance (if you live in the U.S.), disability insurance and travel insurance. Other types of insurance may also be essential depending on your situation include life insurance and car insurance.

7) Invest

Whether you use a robo-advisor like Wealthsimple or invest on your own, you should be investing your savings. The benefits of a robo-advisor are the set and forget mentality, though with a little more work and research you can save on fees and gain greater returns and have more autonomy over your investments by investing on your own. 

8) Maximize Employment Benefits

If your employer has a 401(k) plan or matches contributions to your retirement accounts, utilize them. You usually have to opt-in to take advantage and opting in should be one of the first things you do at a new job. Otherwise, as each paycheck goes by you are leaving money on the table.

9) Invest in Your Career

Next to paying off credit card debt, this is the next biggest return you can make. Invest in yourself. Whether it’s working extra hard at work to get noticed for a promotion, networking with your co-workers, or investing in your education, focusing on your career should be number one. If you have a side hustle, focus on your day job during the day and try avoiding mixing the two. That can be a recipe for disaster.

10) Live Your Life

This blog isn’t about saving every dollar and living like a hermit so that you can finally live the life you want. It’s about being smart with your money to live the life you want today while saving for the future. If there’s something you want to buy, weigh the pro’s and con’s, and make that decision. I write more about how to find a balance in my book, but the key is to living your best life in all ways rather than saving every dollar. There are no right or wrong ways to incorporate smart financial decision making and every idea I speak about is open to tweaking. Adopt what you want with the advice given and live your life the way you want to live it.

Legal Disclaimer: The views expressed by Mr. Dumont on Money Sensei are solely his and not intended as investment advice nor a guarantee of any financial return. Mr. Dumont is not an investment or tax professional, so the information contained on the blog is not a substitute for professional advice. The contents of this blog are accurate to the best of his knowledge at the time of posting, but rules and laws are ever-changing. Please do your research to confirm that you have the current information.

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