There was a time when the wisdom of our parents was handed down through the ages like the treasures of our ancients. There was a time when Coca-Cola cost a nickel and a Netflix subscription meant ordering DVDs by mail. This is not that time. Managing your money is complicated—or at least it feels that way. Here are seven essential money maneuvers every money expert has mastered. Not everyone is privy to this information, but since you’re on the inside we’ve decided to share them with you. Moreover, we’ve employed Evree’s signature Guess what, So what, Now what method to let you know exactly how to use these tips. But first, a wizard’s blessing: May your chimney smoke through many long winters and your purse weigh heavy with gold.
1. Follow the 50–20–30 rule
Guess what Everyone needs a budget. Yes, even you. But people think a budget requires complicated software and spreadsheets.
So what The 50–20–30 rule keeps things simple: 50% of your take-home pay is for necessary expenses like rent and insurance, 20% is for savings and the rest is for fun.
Now what Make a list of all your essential expenses in a month (rent, utilities, groceries). If they add up to more than have your take-home pay, it’s time to make some trade-offs. Some of your regular expenses — like cable television, a second car, or shopping at the good grocery store — are less essential than you think. You’d be surprised how much money you can free up for fun and savings with a few small edits to your monthly spending.
2. Have an emergency fund
Guess what According to survey data, more than half of Canadians have some money set aside for emergencies. The average is $35,237.
So what If you aren’t part of this group, you should start saving today. People should aim to keep three to six months of living expenses socked away in case of a layoff, injury, car troubles or zombie apocalypse.
Now what If you haven’t already, make a habit of putting part of every paycheck into a high-interest savings account or cashable GIC. Your future self — who happens to be stranded at an airport somewhere — thanks you.
3. Pay yourself first
Guess what Experts suggest setting aside 20% of every paycheque for long-term goals. If you follow the 50–20–30 rule, this would be the second most important part of your budget, right after your essential living expenses.
So what Transferring that money hurts. Like, really hurts. Psychologists call it the “pain of paying.” In studies, they’ve determined that the same region of the brain that lights up when you stub your toe (the insula), lights up when you spend money.
Now what Time an automated transfer to your payday, so the money goes into your savings before you even see it. And especially before you see those new jeans at the mall. If you don’t see the money in your account, there’s a good chance you won’t miss it — and you won’t be tempted to spend it.
4. Know your net worth
Guess what Your net worth is just a simple calculation of your assets minus your liabilities. Or, in other words, what you own versus what you owe. The resulting figure can be negative or positive.
So what The figure presents a snapshot of where you stand financially at a particular moment in time, and can provide clues to what your financial priorities should be. A negative number shows that if you were to sell everything you own that day, you’d still owe someone money.
Now what Calculate your net worth. Add up all your assets (home value, investments, savings) and subtract your liabilities (mortgage debt, loans, car leases). If you’re over 25 and want to know what your target net worth should be, try this rule of thumb: (Your Age — 25) x (Your Before Tax Income ÷ 5) = Your Net Worth.
Amaze your friends with your fiscal fortitude.
5. Check your credit score
Guess what Your three-digit credit score is an important number in your life. Super important. But many people have never seen theirs.
So what A good credit score is anything above 700, though the average is just 696. Your score can mean the difference between getting a juicy interest rate on a mortgage or loan, or getting denied altogether.
Now what Check your score for free at CreditKarma.com. If it’s low, you can improve your score by making regular payments to pay down your debt.
6. Get a money buddy
Guess what A joint study between Columbia University and Harvard Business School found that when people designated a peer as their savings partner, their average account balances almost doubled.
So what It’s not just about being held accountable for our actions. The study found that the simple act of monitoring a friend’s progress makes us more likely to save. Psychologists refer to this as Social Proof.
Now what Ask a good friend to be your savings buddy. You don’t need to share everything. Each of you can set a personal savings goal and see who will be the first to get there.
7. Get goal-oriented
Guess what People who set goals — and actually write them down — have been proven more likely to commit to them and achieve them.
So what There are a number of reasons for this. Not only do they give focus and promote effort, they make us tougher. In studies, people who encounter setbacks in their savings were three times more like to dust themselves off and start again when they had committed to a specific goal.
Now what Decide on something you’d like to do or buy in the next 12 to 18 months (the optimal time range for a medium-term goal). It could be a new car, a cruise or just a holiday shopping fund. Set your smartphone backdrop to a picture of your goal. See how easy it is to save money for this goal.