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Episode 3697:
J. Money boils years of writing about personal finance down to the four pieces of advice he repeats most often: contribute at least enough to your 401k to capture the full employer match, track every dollar you spend for three months, build an emergency fund big enough to sleep at night, and get rid of bad debt. He explains why each one works, including the tax break that makes the 401k contribution sting less than expected, and admits how wide the gap was between what he had budgeted and what he was actually spending.
Read along with the original article(s) here: https://budgetsaresexy.com/my-4-favorite-pieces-of-financial/
Quotes to ponder:
"Contribute AT LEAST as much as your employer matches."
"This is the one thing you can do to learn EXACTLY where your hard-earned money goes to."
"There's something to be said in having a pile of cash in your account for whatever it is you'll need it for."
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[00:00:54] This is Optimal Finance Daily. My four favorite pieces of financial advice ever by J Money of budgetsaresexy.com. I'm Justin Malek, and we're going to jump right into today's post as we optimize your life. My four favorite pieces of financial advice ever by J Money of budgetsaresexy.com.
[00:01:24] Every now and then, a friend or two will ask me for my best financial advice. And while I wished I could refer them to a single post of mine, unfortunately, I never could. Until today. This post encapsulates my all-time favorite words of wisdom, jotted down in one simple place. There's a bazillion of things I love to share with everyone, but there are four main biggies I repeat over and over again,
[00:01:51] whether on this blog or when talking to friends, family, or strangers. They aren't new, but they sure do work. And I follow each and every one of them personally, even if I do slip at times. I truly believe that these will improve anyone's finances, regardless of age, occupation, or net worth. Your wallet will thank you, your peace of mind will thank you, and you'll find yourself feeling sexier than ever.
[00:02:21] So here they are, my all-time favorite pieces of advice. Number one, pump up your 401k. If your company offers it, jump in as hard and as fast as you can. Contribute at least as much as your employer matches. If they match 100% of 6% invested, invest 6%. If they match 25% of 3%, invest 3%.
[00:02:49] Whatever the case may be, their portion is free money, baby, aka 100% guaranteed profit before it even gets invested. And if you have the means to put even more in, then you, my friend, qualify for the Badass of the Year Award. Not only that, but Uncle Sam will hate you for it. At least for now, that's a good thing. The more you invest, the fewer taxes you pay out that year.
[00:03:17] Say your annual gross income is $50,000. Well, if you don't put anything in at all, you pay taxes on that $50,000. But say you contribute $10,000 towards your 401k in that year, well, now you're only taxed on $40,000. You pay the taxes later. So yeah, it may suck initially being out of a little money each paycheck, but over time, you'll get used to it, and maybe even forget since it's all automated.
[00:03:46] Either way, those amounts pile up big time over the years, and you'll be thankful you jumped on this money train when you did. And if your company doesn't offer a 401k or they don't match, consider picking up a Roth or traditional IRA instead, or in addition to. Number two, track your spending for three months. This is the one thing you can do to learn exactly where your hard-earned money goes to.
[00:04:15] Think of it as an e-true Hollywood story based on your financial life. You think you know, but you have no idea. Okay, well, maybe it's not that drastic, but you'd be amazed at the things you'd find if you actually sat down and sorted through it all. Even if you do it just one time and one time only, it'll give you a better overall picture of your finances. Once you know exactly how much you spend,
[00:04:43] you can then figure out how to move forward, whether it's to remain on the same route you're currently taking or move to a newer one. I went back through three months of checking and credit card statements to figure out my habits, and boy, was I surprised. It wasn't so much in seeing the items purchased as I remembered them all, but it was the grand total of the expenditures that hit me. I had guesstimated a budget of $500 for my credit card each month,
[00:05:12] but in reality, I was spending between $800 and $1,200. Whoops. I then created a more realistic budget. Number three, create an emergency fund. Simply for a great peace of mind. There's something to be said in having a pile of cash in your account for whatever it is you'll need it for. I really don't know what constitutes an emergency exactly, but for me, it's more of a stash to keep myself out of trouble.
[00:05:43] As for how much to put in there, I personally shoot for three months, but it really depends on what you're comfortable with. It can be two, three, even six months, whatever you feel would make you sleep better at night. Once you reach that point, you're all set. You can then go about using your money as you wish, knowing you have that safety net. And number four, pay off all bad debt. Get rid of it.
[00:06:11] Whether it's credit cards, outstanding loans to friends or family, or whatever, it's not great to have. This is much easier said than done, of course, but my goodness if it's not true. It affects everything from credit scores, mortgage rates, car loans, and even worse, your overall happiness. What would you do if you had zero dollars in debt? How insanely awesome would you feel? It's not gonna happen overnight,
[00:06:40] and it certainly won't be easy, but it's definitely imperative to work it all out. Whatever you need to get rid of it, just start. And that's it. Those are my top four all-time favorite pieces of advice I give out. Some are easier to follow than others, but they all work magic on your financial health. You just listened to the post titled,
[00:07:07] My Four Favorite Pieces of Financial Advice Ever, by J. Money of budgetsaresexy.com. And I'll be right back with my commentary. You've heard me talk about how I started tracking every dollar in and out of my life back in 2010. It began as a business school assignment, and I liked it so much, I never stopped. For years, that meant a spreadsheet I updated by hand. Now, Monarch does it for me. It tracks everything, accounts, investments,
[00:07:36] savings goals, and spending, all in one place. And going automatic showed me something my spreadsheet never did. My savings rate had slipped as my lifestyle crept up. It's like having a financial advisor in your pocket, flagging spending spikes before they become a problem. My favorite part is just asking the AI assistant, can I afford this vacation without touching my savings? And getting a real answer. Write your own money story with Monarch.
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[00:09:01] OneSkin is helping you unlock your healthiest skin now and as you age. For a limited time, try OneSkin with 15% off using code OFD at oneskin.co slash OFD. That's 15% off at oneskin.co with code OFD. After your purchase, they'll ask where you heard about them. Please support the show and tell them we sent you. Thank you to Jay Money. This is a nice, simple list, and I can't argue with any of these.
[00:09:31] But the one I'm a bit biased towards myself is number two, tracking your spending. Because I think it's the one that kind of makes the other three possible. He talks about going back through three months of statements and being shocked. He thought he was spending around 500 a month on his card, and it was more like 800 to 1200. And that gap between what we think we spend and what we actually spend is pretty universal.
[00:10:00] I'd know because I've tracked every single dollar I've spent and earned since 2010. I started it as an assignment in a class and just never stopped. And the biggest thing it did wasn't help me budget, it was just make the invisible visible. You can't fix a leak you can't see. And most of our money leaks are totally invisible until we write them down. So the other three, the 401k, the emergency fund,
[00:10:29] and paying off the debt, all get a lot easier once you actually know your numbers. So if you only take one of his four today, I'd make it that one. Track everything for even a month, and you'll almost certainly be surprised. But that'll do it for today. Have a great rest of your day. Thank you for being here, and I'll see you tomorrow as usual, where your optimal life awaits.