Savings Archives - Adulting

Living the dream as your own boss? Don’t let it become a budgeting nightmare. Stay on top of things when you have a variable income. Read More...

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Zina Kumok

When former cubicle-jockeys switch to a freelance career, it’s almost always in pursuit of one elusive goal: freedom.

But with that freedom comes uncertainty. Many newly self-employed individuals find themselves missing the income consistency that came with their old gig.

But variable income doesn’t have to mean a dubious financial situation. There are a few methods you can use to create the consistency you’re looking for. This allows for the kind of stability you’d enjoy at an office job.

Here’s how I manage my own variable income:

Calculate how much you need.

Living on a variable income is stressful if you’re also living in the dark. If you don’t know how much you need to survive, how can you know if you’re budgeting correctly?

Go through your spending and add up your necessary expenses, including rent, groceries, gas, utilities, debt payments and other bills.

Then divide that number by 75% to calculate your target income.

That will be the minimum you need to earn each month. Anything left over can be used for discretionary spending or saving.

Live on last month’s revenue.

While salaried individuals know how much they’re going to bring in every month, people living on a variable income have no clue.

A long-term client could take an extended vacation or an assignment might be delayed indefinitely. One of my favorite ways to combat this uncertainty is to live on last month’s invoices.

If you grossed $3,000 last month, then you can only spend $3,000 this month — even if you project to make $4,500 this month.

This budgeting philosophy is all about spending the money you have, not the money you think will have. After all, things can and will go wrong every month. The technique also eases your cash flow, since many freelancers don’t get paid until 30 days after they’ve submitted an invoice.

Save most of your surplus.

A friend of mine who worked in the dance industry once told me about a mentor who would go designer shopping every time she got a choreography gig. These jobs paid exceedingly more than teaching gigs and left her with more cash than she was used to.

Instead of saving that dough, she’d go shopping for name-brand purses and clothes. I was shocked when I heard that story, but not surprised. It’s human nature to go on a shopping spree when you land a big windfall. However, budgeting responsibly (especially on a variable income) is all about denying those urges.

It’s ok to celebrate a new client or big project as long as you’re tucking some of it away for a rainy day. Try to save between 70% and 80% of your surplus income and enjoy the rest responsibly.

Keep an emergency fund.

Everyone who works for themselves has a slow period where the work seems to dry up. You can plan ahead for these months by having a larger-than-normal emergency fund.

I keep a six-month emergency fund since my husband and I are both self-employed. Having half a year’s worth of expenses keeps us afloat during the off-season. It’s a good buffer to have and prevents me from picking up a McDonald’s application when the work starts to dwindle.

Multiply your baseline income by how many months you want to save for. Most people with variable income should have between six months and a year’s worth of bills saved in an emergency fund.

Make your expenses the same every month.

One of my favorite ways to regulate my finances has been budget billing for our utilities. Most gas, water, and electric companies allow you to pay the same amount every month instead of the amount you use.

Having budget billing has simplified my finances since I know our water bill will be static, no matter the season. I don’t have to worry about high gas statements in the winter or AC costs in the summer. Contact your energy company to see if they offer this service.

Look for other ways to normalize your bills so that you have the same expenses each month.

Save by percentage, not dollar amount.

Writer Jackie Lam of Cheapsters became a freelancer after she got laid off at her full-time gig. To make the transition smoother, she started saving a percentage of what’s left over after she’s paid the bills, instead of a specific dollar amount.

For example, instead of saving $200 a month for a vacation, she sets aside 5% of her budget. Using percentages makes it easier to hit her savings goals, even if she hasn’t had the most productive month.

In busy times, she might save more than $200, and during slowdowns she might only save $100. That percentage tends to average out over the year.

It’s a way to feel a little more secure and avoid feeling like a failure if you don’t hit a set dollar amount.

Be your own CEO.

If you really miss the stability of office life, consider paying yourself a salary. Once you’ve calculated your baseline, it’s simple enough to choose a stable wage to take going forward. Overage income can be applied to your savings, while consistently coming in under budget can be a warning sign that it’s time to take a pay cut.

This isn’t exactly the most efficient method listed, but it can take a lot of psychological weight off of planning your finances. It’s simple. Pay yourself a little less than you typically make and save the rest.

Do you live on a variable income? How do you make it work? What’s your favorite budgeting technique? Let us know in the #Adulting community on Facebook.

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Financial stability is a requirement for successful adulting. Here’s how you achieve stability and recognize it when you are stable. Read More...

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Harlan L. Landes

If financial independence is the dream, financial stability is the first adult step along the path towards that vision.

On the final day of the year, fifteen years ago, I returned home from a weekend away to find my belongings on the lawn in front of the house I was renting. (I used the Internet Archive’s Wayback Machine to fact-check myself using my old, anonymous personal blog, my first time reading those entries in over a decade.)

My roommate thought I was moving out at the end of December, and when I wasn’t around, she moved two people into the room I had been occupying for several months. I had been planning to move out at the end of January, and the roommate knew this. But my name wasn’t on the lease, so perhaps she thought she could do whatever she wanted.

A later entry brought back the memory of a related event: I visited that apartment again ten days later to pick up a few remaining items, and the new occupants were moving out because that roommate committed some kind of check fraud. But I digress…

Being forced out of my living space with no notice on New Year’s Eve was the end of a particularly bad year. I lost a job, lost my car, and lost my girlfriend. I had moved to northern New Jersey for a job I no longer had. I was in my mid-twenties, but I wasn’t financially an adult. I survived by spending on credit cards, avoiding student loan bills, and accepting help from parents.

With the necessity of moving in with family as 2001 became 2002, I vowed to turn things around for myself.

I wasn’t necessarily aware of the idea of financial independence, but thankfully, that is how I can describe my situation today. In early 2002, I just wanted financial stability. And I had to figure out how to get there.

How I became financially stable.

After college, I chose a career somewhere between education and nonprofit. The organization I was working for was meant to be a stop-gap while looking for a teaching position, but I did enjoy it, and I didn’t put enough effort into moving forward. It cost me more to work as a nonprofit employee than I was earning — and I wasn’t even spending a significant amount of money.

1. I found a new job.

Instead of looking for my ideal career, my priority was earning money and getting back on my feet, taking control of my situation. Nothing is permanent. I could work on my loftier life goals while at least working somewhere during the day that would allow me the flexibility to plan for the future.

Without a car, I was limited to jobs that were accessible by walking or by traveling on the train. I turned to a technical temp agency. That’s how I earned money over breaks during college, and I knew I had many skills that would serve me well in corporate settings. I found something right away — an executive administrative assistant at a major financial firm.

This had no relation to my degree, but it was a job. And it paid 50 percent more than what I was earning at the nonprofit organization. Theoretically, I could even stay involved with the activity I was passionate about on weekends while working a “regular” job.

2. I designed a budget.

My dad helped me brainstorm a basic budget on the back of an envelope. That’s how I remember the situation. This budget had to take into account paying off a cash advance from my credit card, consumer spending on my credit card, and my student loans. I intended to move out and be less of a burden on family as soon as possible, so I budgeted for rent, as well. And savings for the future.

Partly because I wanted to stick to my budget and partly because I needed some self-reflection time to recover from bad choices, I also saved money in the first few months of my new job by staying in a fortress of solitude.

The budget was essential for setting myself up for financial stability.

3. I tracked every penny.

I used free software to meticulously track my spending, making sure I was staying within my budget and paying my bills on time.

You can only have a clear picture of where you’re going financially if you know where you are. It is incredibly easy today to get a full snapshot of your finances at any time thanks to technology. Apps communicate directly and securely with banks, so you all you need to do is check your phone to see where you stand. The app adds your bank balances and subtracts your debt, and the result is your financial net worth.

And beyond your net worth, you need to know how that changes over time, so you track your income and expenses, too. Today, I use Personal Capital and Quicken.

4. I started saving for the future.

It wasn’t enough to have a bank account whose balance was increasing every month. My new job offered a retirement plan with a matching contribution. Always say yes to a matching contribution. It’s free money.

How do you know when you’re financially stable?

To be considered financially stable — a true sign of adulting — you must meet these criteria.

You must be spending less than you’re earning. It doesn’t matter which side of the equation you try to improve, but it helps to focus on both your expenses and your income. You can only cut your expenses back so far — but income potential is unlimited. When you spend less than you earn, you have a surplus. The surplus allows you to have some control.

Living paycheck-to-paycheck — spending every penny you earn — means you have no surplus and you are not moving towards flexibility or control.

You don’t have to be debt-free, but you must be paying down your debt and not accumulating any more. If you’re able to make your minimum payments on your debt and then some, you’re in good shape.
You’re not relying on loans or gifts from family. This is the cornerstone of stability. You can make it on your own, just with your income and your expenses. It’s true that you may be in financial trouble if your income disappears, especially if you’re only beginning to establish savings, but for now, you are making it on your own.
You are building your future through savings and investment. Your nest egg might not be too big just yet, but it’s growing. You’re putting aside extra money to create an emergency fund and you have a systematic transfer to an investment account, preferably a low-cost index mutual fund.
Your friends support your goals. Don’t waste time around people who give you a hard time for being responsible. Often, when one starts acting more grown-up, the friends still wading through adolescence grow bitter. Or maybe you’re the last one to cross the threshold into actual adulthood.

People reach this point at different times in their lives. I wasn’t financially adulting until I was in my late twenties. Some start when they’re 40. And I’ve seen some sixteen-year-olds who are taking control of their future I never would have considered.

You’re moving forward steadily in your career. How you progress is often up to you, even when are faced with resistance was you’re trying to gain more responsibility, authority, and compensation at your job. You do know that often you have to accept more responsibilities before being granted more authority and increases in compensation. This type of success proceeds at different speeds, but you should always be aware of where you stand, and you make decisions that move you forward.
You have health insurance and you take care of yourself. Your health and well-being affect your ability to have a life of any sort in the future, so you watch your health and have an appropriate health insurance plan. You see a doctor once every one or two years, at least, if you’re otherwise healthy, and you see a dentist and dental hygienist every six months. If you need work, you get it done.
You pay your credit card balance in full every month. Credit cards can be great tools for people who are financially stable. They allow you to time-shift your spending, just like the DVR time-shifts The Walking Dead. They allow you to collect cash back and points that can be used for travel. But only if you avoid interest charges, late payments, and pay your balance in full every month.

This could be considered an “advanced technique,” and many people start messing with credit cards before they are prepared to handle the responsibilities. So watch out.

Financial independence is the next step after financial stability, but it could take a lifetime to achieve. Imagine if you no longer had to rely on your job. Imagine if you could live the life that you wanted to live, go where in the world that you wanted to go, and do anything that you wanted to do — without any concern about what the financial consequences would be.

That is financial independence. And you can’t get there without financial stability first.

Are you financially stable? If so, when did you finally achieve it?

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With a real savings or checking account, you can handle emergencies and think about the future. Read More...

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Harlan L. Landes

I understand the objections to owning a bank account, and I share many of the concerns. But proper adulting is nearly impossible without one of these best bank accounts, like it or not.

There may be some people in modern society who live a cash-only life, but that’s going to continue to get more difficult as time goes on unless they make many other sacrifices as well.

Why you absolutely need a bank account.

A bank account may be the only thing that gets you thinking about the future. When all of your mental energy is spent worrying about how you’ll make it through the week, you have no capacity for any kind of higher-order thinking. But that concern for the future is what is going to sustain you and your family over the long term.

Are any of these goals important to you?

Retiring from work and enjoying life all day instead of working until you die.
Buying a house.
Being able to support your children and eliminate unnecessary barriers for them.
Remaining calm when an emergency means you have to spend more money than you planned, sooner than you planned.

If at least one of these sounds appealing, start considering your future needs and saving for them.

Putting money aside is the gateway to flexibility. When you have access to cash, you have more choices. You have more freedom. It is the first step. It’s not enough to just save cash in your home. While it’s not a bad idea to stash some in case of emergencies, it’s dangerous to keep too much in your home or in your hand. It’s unprotected. It’s vulnerable. It could disappear, either by somebody finding it who shouldn’t, or by spending it when it would better for it to remain untouched for later.

Money in a bank account is safe. It will not disappear. In the many years of bank accounts being insured by FDIC, no one has ever lost money in a bank account. Even when banks fail — and some did during the latest recession — every customer had access to their money. The same cannot be said for cash hiding under the mattress or sitting on the shelf in a pickle jar.

Savings means the bank is working for you. When you deposit money, you are giving the bank the right to invest even more, and they often do by granting loans to community businesses and organizations. Banks earn money on these loans, and in general, some of that is passed onto you in the form of interest. Interest rates have been low lately, but those rates will eventually improve.

In the past, banks offered savings and checking accounts for free because they were making enough money from loans. As the depositor, your money is helping the bank earn a profit. But low interest rates have changed the situation, so now customers often have to shop around to find the best deals for bank accounts, but a free account shouldn’t be too hard to find.

There’s the ugly side of banking…

7 percent of households in the United States were unbanked in 2015, and that means that more than 15 million adults and more than 7 million children do not have access to a savings or checking account.

So how are these households, plus the more than 50 million adults and 16 million children who do own savings or checking accounts but are still considered underbanked, manage their money?

They use alternative services: check cashing at special storefronts or inside other retail stores like Wal-Mart, payday loans, pawn shop loans, and auto title loans. These services are expensive and tend to take advantage of individuals who feel they have no other alternatives.

… And there’s the uglier side of banking.

Why does it seem like the traditional banking route is no longer the best way to handle finances?

There never seems to be enough money. 76 percent of Americans live paycheck-to-paycheck. After taxes, every cent is spent on things that seem necessary. Often, this means rent (or mortgage payment), food for the family, and basic utilities. That’s if a paycheck is coming in at all. Living on disability, Social Security, or unemployment results in even thinner income available for necessities — if any.

This is a difficult situation, and the lack of cash flow makes a bank account seem unnecessary, even if that’s not true.

The banks don’t behave well. Every week, there’s another news story about a major financial institution taking advantage of its customers. Wells Fargo just happens to be the latest bank to be caught in a scandal, opening accounts for customers without their knowledge.

The financial industry has a powerful lobby, and they will continue to make things difficult for customers for the benefit of their shareholders, and even the shareholders lose out in the end.

Credit unions don’t run into as many problems because there are fewer conflicts of interest. Credit unions don’t have shareholders, so any profit they may have finds its way back to customers — who are members — in some form.

You may not be able to open a traditional account. I look at my debit card, and it says I’ve been a customer since 1989. That means that an account has been open in my name since I was thirteen years old. My parents opened an account for me and showed me how to use a checkbook. (Neither debit cards nor ATM cards were widely available when big hair and pastels informed the zeitgeist.)

Not everyone has the benefit of financial role models. Those lacking are slower to build credit history and positive financial skills. Without a history in the banking system it’s difficult to get approved for that first account on your own, but it’s never too late or too early to take some steps forward.

Here’s what you can do right now.

Online bank accounts are the best options. If you’re comfortable buying items from Amazon.com online, you should be comfortable banking online. It’s more safe and secure than banking in person. Unfortunately, opening a bank account online often requires that you have an existing account to transfer money. There are ways to get around this, but it’s not easy.

Let’s go right to a bank or credit union first.

Find a credit union in your town. There are seven within five miles of my apartment, and that’s a fact I discovered by using the credit union finder at A Smarter Choice. An urban neighborhood nearby has more than 14. Take any cash you’ve collected recently and bring it in. Talk to a banker about your free options for checking and savings accounts.

When you have a real bank account, you break the cycle of paycheck-to-paycheck living. You begin thinking about the future. You stop wasting money on services like check cashing and short-term loans. You set yourself up for success. You set a good example for your family, now and for future generations.

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Getting out of the paycheck-to-paycheck mode is about more than just spending less. Erin Lowry from Broke Millennial explains how to stop scraping by. Read More...

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Show Notes

Are you tired of scraping by, living paycheck to paycheck? Erin Lowry from Broker Millennial joins us to share strategies on how you can get out of your financial rut.

Erin Lowry is a millennial personal finance expert and the founder of BrokeMillennial.com. She’s also the author of the forthcoming book BROKE MILLENNIAL: How to Stop Scraping by and Get Your Financial Life Together. Lowry has contributed to Forbes, Business Insider, New York Magazine’s The Cut and U.S. News & World Report. Some of her insights have been featured by outlets including: CBSSunday Morning, USA Today, Wall Street Journal, Newsweek and Marketplace Money. Lowry lives in New York City with her spunky rescue dog Mosby.

Watch the live video above or listen to just the podcast audio by using the player below.

Hosted byMiranda Marquit
Produced byadulting.tv
Edited and mixed bySteven Flato
Music bybensound.com

Broke Millennial: Stop Scraping By and Get Your Financial Life Together

Erin Lowry

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You need an emergency fund. For reals. Here’s how to get started and where to put it. Read More...

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If you had to come up with $500 for a car repair or a new appliance, could you get the money? What happens if you lose your job? It’s guaranteed that every adult will face some sort of emergency.

Most Americans can’t handle that, so they turn to credit cards and other debt to help when life throws them curveballs.

Don’t be one of them. Get ready for an unexpected setback by building an emergency fund designed to provide you with what you need in a pinch.

Concepts

What is an emergency fund, and why do you need one?
How much should be in your fund?
Where should you keep your emergency fund?
All-cash funds vs. keeping it elsewhere.
How to set up a tiered fund.
Tips for starting your emergency fund.
Characteristics of a good emergency fund.
Do credit cards have a place in an emergency?

Listen for our “do-nows” for specific actions you can take right now to begin building your emergency savings. We’ll also answer a listener question about how to free up money even when you’re sure you don’t have any available.