In My Two Cents, advice columnist Charlotte Cowles answers readers’ questions about personal finance. Email your money conundrums to mytwocents@nymag.com
As you’ve been reminded by nationwide grumbling and important-looking mail, it’s tax season — a time of financial reckoning. Whether you’re in a shame spiral about how little you saved last year or just have a vague inkling that there’s room to improve, we all need to start somewhere, so carve out a few minutes this weekend to go down this list. Here are answers to some frequently asked money questions to get you off the ground.
1. I know I need a budget, but how do I make one that I can stick to?
People talk a big game about budgets — what’s “in” them or not, and what “buckets” to make for groceries or Ubers or whatever else they spend money on regularly. If you have a system that works for you, great. But I’ve tried many times (okay, twice) to shoehorn my spending into tidy little spreadsheets that I’ve downloaded from personal finance websites, to no avail. My problem — and many other people’s, I suspect — is that this model is too constricting. My expenses vary too much for me to plan consistently. The first month I tried to follow a budget, I blew through my “restaurant” allotment and barely touched my “groceries” category; on my second, I spent a bunch on a friend’s wedding but hardly went out otherwise.
So instead, I decided to give myself a dollar limit per week. The amount is a reasonable number that I know I can stay under if I don’t do anything dumb (and that I can afford, based on my income). I see it as a weekly “allowance,” and I check my account balance every day to make sure I’m tracking under the cap. I envision it like a fence around a yard that I get to play in. There’s space to roam, but I’m not going to look up suddenly and realize I’m lost.
Whatever your budgeting method, it all comes down to spending less than you make. Figure out what your “allowance” is, and then give yourself as much flexibility within it as you want.
2. I don’t even know where my money goes. How can I keep track?
Don’t be embarrassed — most people feel this way, and I used to be one of them. Then, right after Christmas last year, I started keeping a list of all my spending. It started as part of a “bet” that I signed up for, basically by accident, to keep better tabs on my money (I know how nerdy and neurotic that sounds, and trust me, I was reluctant). According to the terms of the bet, I had to write down all of my expenses for eight weeks, which seemed like forever at the time. But now it’s been ten weeks and I’m still going strong.
Personally, I’ve found the exercise oddly soothing, like keeping a diary of sorts. I do it in the Notes app on my phone while I’m waiting for the subway or procrastinating whatever else I’m supposed to be doing, and rely heavily on my credit card records to remind me what I’ve spent when I’ve forgotten. Then I add up the numbers a few times a week — which either makes me relieved or want to do better tomorrow. It also keeps me honest with myself. If I know I’ll feel bad about writing something down later, I won’t buy it (or at least, I’ll think twice). On more than one occasion, I’ve purchased something and then returned it after I wrote it down. Try it! At the very least, you’ll learn more about where your money goes. At best, you’ll spend less of it.
3. Ugh, my debt. How can I be strategic about paying it off?
A 2018 survey found that Americans with personal debt owed an average of $38,000 (including education loans and mortgages). So, you’re in good company. The best that most of us can do is make payments on time and in the smartest order.
First, take a good look at your debt and re-prioritize it if you need to. If you are one of the many people with more than one loan (especially outstanding consumer debt, like a rollover credit card balance), make sure that you’re focused on paying off the debt with the highest interest rate the fastest. Pay the minimums on your lower-interest loans while you throw the kitchen sink at the high-interest one; once you get rid of it, then move on down the line.
Finally, automate your payments. I was traveling earlier this month and, out of pure absent-mindedness, missed a credit card payment — which could have been so easily avoided! I’m still mad about it. If you haven’t already, set up auto-pay features so that you don’t make the same mistake. As I just learned the hard way, late payments trigger penalty fees, ding your credit score, and jack up your interest rates even more.
4. How should I be saving for retirement?
I get it: Thinking about retirement savings is both daunting and boring — not exactly a combination that makes you clap your hands and run to your desk. But it’s like going to the dentist — the longer you wait, the more painful it’ll be when you finally have to deal with it.
As you’ve probably heard, if your employer has a 401(k) option, you should sign up for it, especially if there’s a matching program. (If you don’t know about any of the above, you can email your company’s HR person and ask. Don’t be embarrassed. It’s their job to explain this to you.) Automate your contributions so that you don’t have to think about it.
If your employer doesn’t offer a 401(k), or if you’re a freelancer or self-employed, look into opening an IRA or a SEP account (here is a longer explanation of your options). The sooner you start putting money into these “retirement vehicles,” the better. All you need to know is that it’ll save you money in taxes and will grow more steadily than almost any other type of savings thanks to compound interest.
And finally, if you have an old retirement account from a previous job lying around somewhere, figure out a time to track it down and roll it into your current account. See here for more details on that process, and be patient — it’ll probably involve some phone calls and Muzak.
5. I think I need more personalized help with my money. Who should I talk to?
Research has found that socialization around money is one of the most powerful ways to make you feel less ashamed of your own. This isn’t to say you should go shout your salary from the rooftops, but put yourself out there a little bit. Identify a few people who seem to have their financial act together and ask them about it. If you’re worried about making them uncomfortable, you can couch your questions: “I’m trying to get better about my own finances, and I’m curious about how you handle x and y.” People love to talk about themselves, especially when you frame it like they’re doing you a favor by monologuing about mundane aspects of their lives.
If you want professional help, put out the word to see if anyone knows a good financial adviser (this is also another good way to instigate money conversations). You’ll want to find a certified financial planner who is a fiduciary (be sure to ask) and charges on an hourly fee basis, at least to start. You can also shop around for advisers in your area on this national database.
Finally, look for one or two people who are older and wiser than you — an aunt, a friend’s older sibling, a family friend — and ask them for more formal financial advice. They’re probably dying to smack their former selves for the money choices they made in their past, and you’re giving them the next best option! If you’re comfortable, you can even ask them to check in occasionally and hold you accountable for goals you’ve made. They’ll probably be flattered, and you’ll be getting their help for free.
