Almost as much as I get asked for yoga advice, people come to me with questions about money. It’s funny, because talk about money and savings and finances has always seemed boring and stressful to me. I was always a great student, but if it hadn’t been for help from my roommate, I wouldn’t have passed my required finance class in college. In the past few years of living on my own since graduation, I’ve learned A LOT about money, and what works for me financially to be able to afford to live the life I want. I’m still no expert, and I have no idea what an IRA is or how the stock market works, but I can tell you how I organize my money to allow myself as much freedom as possible. Here’s my own personal techniques on how to save money, no accounting knowledge necessary! You can also check out my posts on money-saving lifestyle changes and cheap travel tips for more advice!
***Once again, I don’t have a background in finance or accounting or banking. I’m just a girl who’s learned a lot the past few years from both good and bad financial decisions and would like to share those lessons. Follow my advice at your own financial risk!***
1. Separate Your Accounts
I keep my money in a lot of different places. If it’s not all easily accessible, I can’t spend it all at once! It gives me security knowing that, if I need it, I have money saved somewhere. One of the most helpful things I did for myself financially was opening a second checking account as well as a savings account through my bank. Here’s why I’ve split it up and how I use the different accounts.
My primary account is the one I use to pay my bills. It’s where I deposit all my cash, and it’s attached to my debit card. This is the one from which money flows in and out on a regular basis. Since more money is coming and going, I have to keep a closer eye on it to make sure to avoid things like overdraft fees when it’s time to pay bills. Also, if you’re generally good with money, an overdraft fee here and there can actually be reversed. My bank will refund up to 2 per year. Always worth making a call if that happens to you!
Checking account number 2 is a little more restricted. No debit card attached, just a checkbook. It’s my rent and short-term savings account. Since there’s no card attached, I can’t accidentally spend from it, and thus I know my rent checks will never bounce. Each month, I transfer the amount of money I need to cover my rent, plus a minimum of $50 extra, into this account. On weeks where I’ve been working more and making more money, I try to add in even more. Once again, having a separate account where no money comes out for other bills or credit card payments or anything offers peace of mind that I’ll always have enough money for rent and my checks will clear. The extra money in the account is my short term savings that I plan to spend within the next year, like on a big vacation. Once money is in this account, it is only used for rent and whatever my short term vacation or purchase goal is, and I don’t consider the money in there as available for anything else.
Account number 3 is my savings account. This is my planning for the future/emergency fund. It is not attached to a debit card or checkbook, and once money is in here, it does not come out. Of course, it wouldn’t be difficult to open up my online banking account and transfer this money if I chose to do so, but I don’t. Also, some banks will charge you to move money out of a savings account, or have a limit on how many times you can do so in a certain time frame. The money in this account isn’t used for trips or treats or even groceries. In my day to day life, I basically pretend like this money doesn’t exist. It’s there in case of absolute emergency, like if I became injured and had to take time off work. My goal is to be able to cover at least 6 months of living expenses with this account at all times. I also add a minimum of $50 per month to this account, though I will always add more when I am able. Since this is the account that will always have the most money, I chose a savings account so that I can earn interest, thus continuing to grow my savings (albeit veeerrryyyy slowly). A personal financial goal for myself is to learn how to invest my money to make it grow faster, but that’s the kind of money talk that immediately scrambles my brain and makes it shut off. So this is what I am doing for now.
I always worry about giving this particular piece of advice. Used correctly, credit cards offer many benefits and financial freedom and flexibility. Credit cards can offer you benefits like cash back or airline miles. They also allow your spending to be a little more flexible. I often book flights/hotels on my credit when I don’t have the money on hand right then but know I have the money coming in soon, that way I don’t risk prices going up if I find a deal. Credit cards also make online shopping (which I love to do) safer. If your identity/card information gets stolen and you’ve used a debit card, it’s real money that is being stolen right out of your account. A credit card payment is a promise to pay, not an actual payment, and it’s a lot easier to get those charges reversed!
On the other hand, credit cards can also be an absolute disaster, especially if self-control isn’t your strength. I’ve been there. There was a time in my life where all the money I was making each month went to paying off the previous month’s credit card statement, and it would wipe my bank account clean. Then, when emergency costs would pop up, I wouldn’t be able to pay them…except by putting them on my credit card, which I was already barely able to pay off. So if your self control muscle has atrophied, opening a credit card may not be the best choice for you. If you exercise that muscle regularly, here’s some credit card advice.
This is one of those bits of advice you look and think, “well, duh.” But it’s way easier said than done! Which is how people can get into trouble with credit cards. If you only use your credit card to buy things you’d be able to buy without a credit card, you’re in good shape. So keep track of your finances. It’s great to have the flexibility to buy something a little early while you’re waiting on a paycheck or a payment. But make sure you’re keeping an eye on how much you’re spending and when more money is coming in.
Pretty straightforward, right? But the risk with credit cards can be spending money you don’t have…and then still not having that money when your monthly statement arrives. If you pay off your balance in full and on time, you’re not charged any interest or extra fees. And that’s important. The whole point of having a credit card is the freedom and flexibility, and you lose that if you’re paying interest charges and late fees instead of having that money available to spend on what you want. This goes hand in hand with the advice above. If you’re only buying things within your limits, you’ll have no trouble paying off your cards on time and in full every month. It doesn’t necessarily save you money, but it keeps you from losing it!
Having trouble keeping track of payments? Set an email reminder for a few days before your statement is due. As a backup plan, you can also set automatic payments. You can have an automatic payment for the full amount (this always seems risky to me, just in case you don’t have the full amount available in your checking on the due date, especially if you have a job that requires regular trips to the bank to deposit money!). Or, to guarantee at least avoiding a late fee, you can set an automatic withdrawal for just the amount of the minimum payment (usually around $30 for most cards). You’ll still be charged interest if you don’t go in and pay the rest of the balance in full within a certain time frame, but it’s peace of mind against being slammed with a $20+ late fee if you accidentally miss a due date. It happens to the best of us!
If you’re going to open a credit card or two, you might as well get the most benefits that you can from them. I highly recommend a card that earns cash back. I feel like it offers the most flexibility and usability compared to other benefits (like airline miles, for example). If you’re going to be spending that money anyway, you might as well “earn” a little money while doing so! There are a lot of cards that have some sort of points or cash back system. I’ll speak to the two I have personally and why I like them, but make sure to do your research to find one that’s right for you! I have a Visa Cash+ card through my bank (which makes payments super easy because it’s in the same online banking portal as my other accounts), as well as a Discover It card that I opened separately. The benefits for both are pretty similar.
So this is huge for me. I’ve never understood credit cards that cost you money to use them! From my research, there are very few cards with benefits so good they’re worth paying for. Or, you have to spend a ton of money to make those benefits worth the cost, like money way beyond what I make or spend. And judging by the fact that you’re reading this blog about basic money saving tips, you’re probably in the same boat. There are plenty of cards that allow you to accrue a decent amount of benefits (like the Visa Cash+ and Discover It, two of the cards I have) without paying an annual fee. Most annual fees that I’ve seen are around $49-$99 after a free introductory year — the cost of a cheap flight or really nice dinner out! Think of it that way and find something that’s free every year, not just the first one.
Different cards allow you to earn more money on different types of purchases, or to choose from which categories you want to earn extra cash back. Both my credit cards offer 1% cash back on all purchases. In the grand scheme of things, 1% might not seem like much, but over the course of a year, every little bit counts! Besides rent and other bills that have to come from a checking account, I buy exclusively using my credit cards, which ensures I earn money on every purchase. Each card also offers additional opportunities to earn extra cash back.
My Visa Cash+ allows me to choose one category where I will earn 2% cash back and 3 categories where I will earn 5% cash back each quarter. The 2% categories include restaurants, gas stations, and grocery stores, and I change the category each quarter based on where I think I’ll be spending most of my money. It’s usually restaurants, but when I used to drive a giant SUV, I had to fill up my tank more so I used the gas stations category more often. I also get to pick three 5% categories, all of which are a little more niche, and once again I choose based on my plans for the coming months. Categories include things like fast food, gyms, rental cars, department stores, electronics, etc.
My Discover It does not allow me to select my own categories, but instead offers a different 5% category every quarter, most of which are pretty applicable to the season. Categories include things like gas stations and ground transportation, restaurants and movies, Amazon.com purchases, home improvement stores, etc. I like to have 2 credit cards that earn in different categories so that I can maximize my cash back all year. When my Discover is earning extra in the restaurants quarter, I’ll select gas stations or grocery for my Visa, and vice versa. My Discover card also allows me to earn extra cash back on online shopping if I go through their website. It’s great to get a little bonus from places I already shop online. The cash back amounts change, but are usually anywhere from 5-10%, and are subject to change even for the same website.
And since I like to keep things separate, I let my cash back build up as if it were a separate account. (There are some cards where you have to redeem rewards/cash back within a certain time frame, so make sure you don’t let anything go to waste!). Earning $40 or so per month (more or less), might not seem like a lot, but overtime it adds up! I wait to redeem it until I’ve saved up a decent chunk of change, and then usually cash in on it and apply it directly to a credit card bill or student loan payments. Since it’s not money I ever really see, I don’t miss it when I use it to pay things off rather than using it for something more fun!
Anytime I get a large lump sum of money (which pretty much exclusively applies to getting my taxes back, though I did also receive a nice chunk of change when my car got backed over by a bus last year…), it goes directly to savings or to paying off debt. It’s tempting to spend large sums of money (and sometimes I’ll use like 10% of it to splurge on something), but this little trick is the fastest way I’ve found to grow my savings/emergency fund. Allowing yourself a small portion of the money for fun is always nice, but putting the majority of it away is an easy step towards more financial security.
So that’s how I do it! It may not be the most conventional advice, but it’s kept me organized and debt free for the past several years once I figured out my system. See what works for you! How do you keep your finances organized? Feel free to comment your ideas below!
For my next post I promise to write about topics that are more fun than money!