Regardless of when you start investing, the basics stay the same.
In this article, I’ve listed the top 15 personal finance tips for beginners to get ahead financially.
Now more than ever, it’s so important to understand the basics of personal finance, especially because 78% of American adults live paycheck to paycheck.
Want to find out how you can become financially free?
Keep reading this article to find out the best financial planning tips to help you get ahead.
Top 15 Personal Finance Tips
Finance Tip #1: Build [and stick to] a Budget
One of the most important personal finance tips for beginners – and virtually anyone – is to build and stick to a budget.
Think of a budget like a road map: You can’t get from Point A to Point B without a guidance tool – your road map.
Your budget does exactly that – your budget guides you from your current financial situation to where you want to be in the future.
Sadly, only 4 in 10 U.S. adults have a budget – which is shocking considering that 78% of Americans live paycheck to paycheck!
A budget builds the foundation on how you treat your income and expenses.
Below are some steps that will help you create a killer budget:
- Determine how much you’re spending currently
- Determine your future financial goals
- Build a budget to help you get there
Personally, I think You Need A Budget [aka YNAB] does such a good job when it comes to visually breaking down your current spending patterns versus how much you should be spending to reach your future financial goals.
YNAB claims that new YNABers save more than $600 in their first 2 months – and they save more than $6,000 after their first year.
And it gets better, YNAB also offers a free 34-day trial!
Finance Tip #2: Calculate your Net Worth
One of the most important personal finance tips to help you better start managing money is determining your net worth.
Most 20-year-olds for example have a negative net worth, especially if they just came from college and are paying off student loans.
Below is a graph of the median net worth for the following age groups:
|Age||Median Net Worth|
35 to 44
45 to 54
55 to 64
65 to 74
75 and older
Your net worth is basically a snapshot of how much you own vs. how much you owe at a single moment in time.
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Either way, your net worth statement should help you understand where you are currently and which debts you may want to focus on paying off first so that your net worth increases.
Finance Tip #3: Become a Savvy Saver
One of the most common finance tips for beginners is to save money.
How do you save money?
Below are a couple of steps you can start now:
- Create a budget
- Only buy what you need
- Cut out unnecessary expenses
- Look for coupons and promotions
Here’s the easiest way to save money: Download the free money saving app Honey.
Honey is a free app that you download onto your computer (it only works with the Google Chrome browser).
From there, you just keep browsing online and Honey pops up with a notification on your computer every time there is a:
- Savings opportunity
Keep in mind that a small amount saved can make a big impact on your overall picture.
Here’s another way to save more money: Cut your subscription costs.
Subscription services (like internet, cell phone bills, streaming, etc.) can cost you a pretty penny over time.
You can save a nice chunk of money if you cut your subscription costs – and services like Truebill negotiate your subscription costs for you.
You don’t pay them a penny unless they successfully reduced your price (at which point you pay a percentage of what Truebill managed to save you).
Personally, I save and invest just around 70% of my gross annual income because I have lofty retirement goals and I know that an “average” rule-of-thumb will not get me there.
And, sometimes, that means sacrificing a little more today (by saving more money) to live a much better tomorrow.
Finance Tip #4: Start a Side Hustle
There is a downside to saving money: The amount of money you can save is limited.
In other words, everyone will have to spend some amount of money for basic living expenses like food, shelter, water, etc.
However, the amount of money that you can earn is unlimited.
And that’s why you should consider starting a side hustle.
In fact, one in three Americans already has a side hustle.
Especially with the recent COVID-19 outbreak, a lot of us were shown that you cannot rely on just 1 income stream anymore.
Your work could let you go at any moment and you’d be left without an income stream. That’s why it’s so important to find and build a side hustle that could add an extra income stream to your household.
In fact, 31% of Americans started their side hustle in 2020 – and another 24% of Americans (around 61.1 million people) are planning to start a side hustle in 2021.
Clearly, side hustles are a growing trend.
Here’s how you find your perfect side hustle:
- Find something you like to do
- Find something that could earn you money
- Learn as much about your side hustle as possible
- Carve out about 3 to 4+ hours a day for your side hustle
Believe it or not, if you work hard and if you’re consistent with your efforts, your side hustle could replace your full-time income.
Finance Tip #5: Build an Emergency Fund
A very important piece to your personal finance strategy is building an emergency savings fund.
An emergency fund is designed to help you in the case of an emergency like:
- A flat tire
- A leaky roof
- Medical bills
So, if it costs you about $2,000 per month to live, then your emergency fund should have the following range of cash saved:
|Minimum of 3 months’ worth of living expenses||Maximum of 6 months’ worth of living expenses|
$2,000 X 3 months = $6,000
$2,000 X 6 months = $12,000
Now, your emergency savings fund should be liquid – meaning it shouldn’t be invested. It should just be a cash account.
To get the biggest bang for your buck, you should consider opening a high-yield savings account like through Axos Bank.
A high-yield savings account is the same thing as a regular savings account at a bank (FDIC insured, online access, etc.).
The only difference is that you earn a higher interest rate with a high-yield saving account (up to 10x the national average).
For example, my savings account at my bank yields about 0.01% interest.
Axos Bank, for instance, would yield 0.61%.
An emergency savings account is critical to your financial health and it should be one of the first things you should aim to build before focusing your financial efforts elsewhere.
Finance Tip #6: Live Frugally [But Don’t be Cheap]
Managing money on a tight budget is more of an art than a science.
If you want to:
- Retire early
- Find financial freedom
- Get out of the 9 to 5 rat race
…Then one of the first things you’ll want to do is to start living frugally.
Frugal living doesn’t necessarily mean living cheaply.
Below are some fun financial tips that you can implement to live more frugally:
- Make your own foamy hand soap by mixing dish soap with water (ratio of 1:3)
- Ask boutique stores or massive retailers if you could use their old clothing hangers
- Pre-wrap shoeboxes with gift paper and reuse the shoeboxes when gifting presents
While these lifestyle changes may seem small – over the long run, saving money on hangers and gift wrapping paper could make a huge difference in your budget.
Of course, there are more drastic changes you can make that include:
- Start budgeting
- Find a roommate
- Don’t buy a new car
- Stop going out to eat
- Stop buying new clothes
If you implement any of these money tips today, then make sure that you use the money you saved to build your emergency savings fund, pay off high-interest debt, or invest in the stock market.
Don’t just let that cash sit around and do nothing.
Finance Tip #7: Pay off High-Interest Debt
Guys and gals, this is one of the most important financial tips you’ll ever hear: Pay off your high-interest debt ASAP.
High-interest debt (like credit card debt) is bad debt.
If you do find yourself building bad debt, your priority should be paying off that bad debt as fast as possible.
Let me show you:
|Average Credit Card Interest Rate||Average Stock Market Return|
20% to 24%
7% to 10%
It would make more sense to me to pay off bad debt (because your “return” – aka the interest rate that you’re being charged) is much higher than the average return in the stock market.
If you have credit card debt, then I recommend you check out the credit card debt consolidation company Tally.
Tally helps roll all of your debts into 1 giant pot, so your payments are consolidated (aka you don’t have to pay 15 bills to 15 different companies), typically your interest rates are lower, and your deadlines are moved as well.
Finance Tip #8: Invest in Low-Cost Index Funds
This is one of the most important financial tips for beginners: Invest in the stock market using low-cost index funds.
Ok, what does that jargon mean?
Here’s a breakdown for you, in plain English:
|Finance Jargon||Plain English|
Make regular contributions
A riskier investment (because you’re investing in companies) but it’s proven especially over the long term
You pay money for the privilege to invest in a certain company, mutual fund, ETF (exchange traded fund), etc. This is called an “expense ratio”
A basket of companies that is designed to perform as well as an index
Index Funds are not designed to outperform the market. But, they are low cost, they are low stress, and over the long-term (historically speaking) they have always done well.
One of the most effective index fund investing strategies is known as the Dollar Cost Averaging strategy (aka the DCA strategy).
Dollar cost averaging works because it takes human emotion out of the situation.
Because we are human, we are driven by emotion – which can often be quite detrimental to our investment strategy (we decide to sell out of fear and we decide to buy out of greed or FOMO).
Here’s an example of a DCA strategy:
|DCA Strategy Example|
Stock the Money Will be Invested In
SPX (an S&P 500 Index Fund)
How Often the Money Will be Invested
Every 2 weeks
How Long This Strategy Will Be In Place
Over time, your DCA strategy can make a huge difference in your investment portfolio.
The trick is to stay consistent with your plan – and of course not to withdraw money from your investment portfolio.
If you’re serious about investing for the long term, then I’d suggest you consider opening a free M1 Finance investment account.
Here’s why M1 Finance rocks:
- It’s free to open
- It offers low expense ratios
- It charges $0 in management fees
It took me about 5 minutes to install and M1 Finance gives you the choice to either use 1 of 80 preselected investment portfolios (prepared by the M1 Finance team) or you can build your own investment portfolio.
The downside is that you need have at least $100 to start investing for an individual account or at least $500 to start investing in a retirement account (like an IRA).
M1 Finance will work wonders if you’re seriously committed to investing a set amount of money over a long period of time.
Finance Tip #9: Review Your Insurance Coverage
While this finance tip may be one of the more advanced personal finance tips, I do think it’s important to mention that you should review your insurance coverage annually – if not semi-annually.
By insurance coverage, I mean the following:
- Car insurance
- Life insurance
- Home insurance
- Health insurance
If you have other insurance policies, then I would review those as well.
Believe it or not, there is a lot of money that you can save by reviewing your insurance policies and potentially editing some of the content on these policies.
For example, you could save $100’s if not $1,000’s if you review your life insurance.
The cheapest type of life insurance you could buy is called term life insurance – and typically for $1 million in a death benefit, you would have to pay around $30 to $50 per month, depending on your health profile.
Need help deciding between insurers? Policygenius makes it easy to compare quotes and companies in one place.
The team of experts at Policygenius is on hand to guide you through the application process step by step.
Let’s switch gears from life insurance to car and home insurance.
Even if you feel like you don’t need to update your home insurance, it’s worth running a free quote, just to see what prices you could be eligible for.
I’d suggest you take a look at Lemonade insurance to run some free quotes.
Lemonade homeowners insurance covers you:
- If a tree falls on your shed
- If you’re sued for liability
- If your home is damaged
- If your home is unlivable
- If your stuff gets stolen
- If a visitor gets injured
It gets better: Prices start from just $25 per month.
Finance Tip #10: Understand the Difference Between Traditional & Roth
One of the most important money tips for any beginner or advanced finance nerd is to understand the difference between a Traditional account and a Roth account.
Finance can be like a foreign language.
When I first stepped into the finance world (I came from a background in public relations), it felt like I was learning a new language.
I understand your pain.
Regardless, if you want to get ahead and improve your financial wellness, it’s important to understand basic finance terms.
Keep in mind that you could have a Roth IRA, Roth 401k or even Roth 403b. Likewise, you could have a Traditional IRA, Traditional 401k or Traditional 403b.
Roth means you already paid taxes on your contributions, while Traditional means you will pay taxes on your contribution when you withdraw your money (typically recommended to occur after age 59.5)
Below are some additional differences between Roth accounts and Traditional accounts:
|Roth Account||Traditional Account|
Your Contributions Are
Taxed at today’s tax rates
Not Taxed – and typically they are deducted from your income
Your Earnings while your money is invested in your account are
Your Withdrawals Are
Taxed at future tax rates
Typically Works Best For
Millennials with high earning potential
You are in your peak earning years
If you’re starting in your career but you want to start making contributions to a Roth Account, then you may want to consider opening a Roth IRA with M1 Finance.
M1 Finance is free to open, is free for anyone to invest, and it takes about 5 minutes to download and open your profile on your phone.
The only downside is that to open a Roth IRA with M1 Finance, you need to be pretty committed to investing your money – consistently – because the minimum needed to open a Roth IRA is $500 for M1 Finance.
Finance Tip #11: Invest in Yourself
Investing in yourself is likely the most crucial personal finance tip and yet, it can also be one of the most fun financial tips.
Now, I don’t necessarily mean go straight to college, go into debt by several $10,000’s and start working a job.
What I mean by investing in yourself is that there are many tools around – and often free – that can still help you get ahead in this world:
- Online courses
The cost of the course, book, etc. will likely pay for itself in the future.
One of the top online classes for students from virtually any skill level is MasterClass.
Masterclass offers new classes in areas like:
- Cooking at Home
- Sales and Persuasion
- Strategy and Leadership
- Effective Communication
- Creativity and Leadership
- Teaching wilderness survival
My husband and I joke because I’m a terrible cook and he keeps telling me to check out Gordon Ramsay’s “Cooking at Home” tutorials (it’s actually pretty awesome).
This is the place to take time out of your day to level up, get better, which could all lead to improved future financial wellness.
Finance Tip #12: Update your Will
Updating your will is likely one of those advanced personal finance tips – but still crucial for anyone who is looking to improve their financial health.
Most Millennials don’t really think about estate planning because we’re just starting out in life, and we don’t want to think about death.
I get it.
But planning for your future (aka your death) is critical.
That’s because we just don’t know when our plans will end – and we want to be sure we’re prepared for anything that comes. For our family.
That’s why it’s important to update and review some of the following estate planning documents every 8 to 10 years or so:
- Basic Wills
- Living Wills
- Durable Power of Attorney
- Financial Power of Attorney
- Guardianship documents (for kids)
I would honestly recommend you to spend the money and visit an actual estate planning attorney to draft up these documents for you.
However, estate planning attorneys don’t come cheap, as they typically charge between $1,000 to $2,000+ for basic estate planning documents.
If you don’t have that spare cash, you could choose another, much more cost-effective option by creating your estate documents online through companies like Trust & Will.
Trust & Will is a respected and well-known online provider for estate planning documents.
While Trust & Will may not provide the same level of customized service as an individual estate planning attorney does, you will still receive estate planning services for a fraction of the cost (we’re talking about a few $100).
Especially for Millennials whose situations are typically not complex (yet), an online estate planning company might be the next step.
Make sure you protect yourself and your family today.
It’s not fun to talk about your own mortality, but it’s necessary to take the precautionary steps and start planning ahead.
Finance Tip #13: Take Advantage of Employer Matching Contributions
Another important finance tip that everyone should follow today is taking advantage of your employer matching contributions.
What does this mean?
First, you’ll have to answer some of the questions below:
- Are you an employee?
- Does your employer offer a 401k or a 403b?
- Are you eligible to contribute to your 401k / 403b?
- Are you aware if there is an employer matching program?
- Do you know how much your employer is willing to match?
If you don’t know the answer to these questions – that’s perfectly fine.
Here’s how you can find the answer to these questions:
- Contact your Human Resources department and ask them these questions
- Review your plan document (you should have received either a PDF or a physical plan 401k/403b document when you first were hired)
Employer matching contributions are essentially free money – and you’re not taxed on those contributions, either.
How do you become eligible for an employer matching contribution?
As long as your employer actually offers a matching contribution, you become eligible when you start contributing to your employer-sponsored retirement plan (aka your 401k or 403b).
Typically, employers will match your contribution dollar-for-dollar, up to 3% or 4% of your total salary.
|Employer Matching Contribution Example|
Your Annual Salary