General Question

nikipedia's avatar

How do I start being a responsible grownup with my finances?

Asked by nikipedia (27335 points ) February 7th, 2010

I am irresponsible. I’m bad at paying my bills on time and I leave dishes in the sink for days and I’m always late to stuff.

Someday I am going to be old and I will still probably be irresponsible. But I don’t want to end up old and destitute and pathetic and a burden on society, so I realize I need to start saving money while I’m still relatively young.

Where do I start? Should I open an IRA? Roth or traditional? Or do I buy mutual funds? Or index funds? Or something else entirely?

Also I have no idea how one actually does any of the things I just mentioned. I hate my bank (Bank of America) and would rather they have nothing to do with my long-term savings and I assume there are other companies that manage this kind of thing. But I am also not rich and not trying to invest huge sums of money, so maybe those companies aren’t appropriate for what I want to do?

I would love to hear about how other people have successfully created a financial safety net for themselves, especially if you started out young and dumb and irresponsible like me. Whatever advice you have is helpful.

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14 Answers

Simone_De_Beauvoir's avatar

Okay, baby steps. incidentally, I have BOA too and they’re okay by me, when compared to my previous banks My initial advice to you would be to try to eliminate all credit cards in your life and work with 1 checking account and 1 debit card. You should also get a grasp on your credit history and credit score – if you go to https://www.annualcreditreport.com/cra/index.jsp
you will not have to pay for it (no hidden fees, either)
Second thing, set up a savings account (not through your bank) – through ING, for example – where you put about $500—$1000 initially and don’t touch it, keep adding to it…it has a good return yield.

janbb's avatar

@Simone_De_Beauvoir ‘s suggestions ae all great. I would just say have a set amount of your income go straight into whatever savings vehicle you set up monthly before you even see it (e.g., direct deposit.) There are financial advisors who will do an initial consulation with you and give you advice; you can then decide whether to open an account with them or not. You’re probably not at the investment level where it would be worth it, but it would be good to talk to one anyway. Otherwise, I’m sure there are books like “Investing for Dummies” that will give you some basic ideas.

marinelife's avatar

Consider joining a credit union. they have classes on investing. They give good returns on IRAs adn savings accounts.

Do you have a 401K option at work? That is a good way to start saving.

PandoraBoxx's avatar

Start by having money come out of your paycheck into whatever 401K or ESOP plan your company offers. Having money come out of your check and going into an account where you can’t get to it, and start with that. Increase the amount going in by any raise that you get.

There are a couple of things that might be helpful. One is taking an investments class through a continuing education class. You might also want to think about joining or starting an investment club so that you are able to work through the learning part of investing with other people. Reading a site like Motley Fool www.fool.com regularly, and books Personal Finance for Dummies or Investing for Dummies is also helpful.

Good financial habits can be cultivated. You work hard for your money; it’s not just handed to you. No one is going to replace it if you squander it.

nikipedia's avatar

@Simone_De_Beauvoir: Way ahead of you! I have not really used credit cards since college and I have an ING account. I have periodically set up automatic savings but it seems like inevitably I get into a bad financial situation and am forced to stop it temporarily. This summer the shit hit the fan and I had to empty my account and start from scratch.

Now that I am building it back up I want to stop dicking around and put it in an account where it’s out of my hands.

Simone_De_Beauvoir's avatar

@nikipedia hell if you haven’t used credit cards and have an ING accounts, then you’re not a financial dummy and are better informed than many others…so don’t get down on yourself…there are always situations that come up that cause us to empty our savings, that doesn’t mean we’re financially irresponsible
Next thing you should do is open a CD account – that way you can’t take money out of it because it’s required that you leave the money for a certain period of time and it has a better return yield than the previous ING example I mentioned.

DrC's avatar

I’m struck by your comment about not washing the dishes and always being late with stuff. It might sound simplistic, but getting into the habit of washing the dishes every time you finish a meal, it helps you face your responsibilities in small increments (just that meal rather than several days worth of dishes). Make sure you praise yourself for your accomplishment (as small as it may be) when the sink is clean and empty! This reinforces your commitment to keep it up.

This translates into addressing other responsibilities on a periodic basis – paying bills, saving. You didn’t say how much money you have, so it is difficult to comment on what investment is best for you. There are income limits for Roth IRAs. Just like the dishes, if you make a commitment to address the savings/investment issue on a regular basis, you can have success. By contributing a small amount each paycheck, you continue to build up your savings – pick an account without fees!

kevbo's avatar

@nikipedia, The book Your Money or Your Life (actually the older version) was most influential on me when I was in my mid-20s. It is great for developing an eye for the flow of money into and out of your life and for helping you understand how much you really need to live on (so the rest can be saved/invested). The older version was “on the money” until it got to the investing part and then it talked about a super simple investment plan—maybe too simple. I’m not sure if this book spreads out a little in that regard, but while I followed the plan, I had $1,000 in the bank and bought a car and a motorcycle for cash. That may not sound like much, but I was only taking home $1,000 a month as an Americorps volunteer during that time period. You also might like Get a Financial Life: Personal Finance in your 20s and 30s.

With respect to dishes, etc, you might like Mary Morgenstern’s Time Management from the Inside Out and Organizing from the Inside Out.

If either of your parents were military, you should be eligible for USAA. I would strongly recommend becoming a member if you can. They’ve got great products and services re investing.

kelly's avatar

write down all your monthly and yearly repeating expenses, rent, mortgage, utilities, insurance premium, estimate what you paid in copay for medical insurance, all the items you must have money to pay for including food, fuel. Then make a monthly chart of what is due each month, like rent and the the yearly due date month, such as car insurance is due in July and January. Divide these semi-annual or annual payments by 12 for a monthly “cost”. Also make a fund for food and fuel and entertainment etc that is all you can spend on those items. Then when you get income, actually write a check from your checkbook for the amount you need to have reserved so you can pay the bill when due. Put the check into an envelope ( say marked food budget or rent) and deduct it from your checkbook, write on the envelope the amount, and accumulating total. Then when the actual billing comes in, write a check to the billing entity and remove the accumulating checks, zero the balance and start over for the next time that bill will come. This method takes the money out of your sight and out of the balance in your checkbook so you won’t spend it now, hoping to have the funds when due. The dollars are actually still in your checkbook of course until you mail the actual check, but the process puts money into “reserve” envelopes so you won’t be likely to spend it.

PandoraBoxx's avatar

You need long term liquid savings that cannot be touched, and short term savings for emergencies. Any extra money goes towards long term liquid savings until you hit your goal This is the emergency money so if you lose your job, you can take care of yourself for awhile. Short term savings can be accumulated in your checking account, so that you have ready money for car repairs, vacation, etc. It’s a nice feeling to have $5000 in a checking account after your bills have been paid.

funkdaddy's avatar

There’s a lot of great suggestions here, but I just want to add a different possibility as well. Most investments mentioned here are very safe, but carry small returns, they are essentially savings accounts which can be good or bad.

If you’re tucking some rainy day money away for if your transmission blows up, you have to come up with a deposit on a new place you rent, or things like that those are great because you can get at the money fairly quickly and it doesn’t matter when.

If this is retirement money you’re trying to save, and I don’t vastly underestimate your age, you could probably mix in some of the other options you mention (mutual funds, index funds, stocks) and get a better return averaged out over the next 30+ years before retirement. Just as an example: a great interest bearing investment might get 5% or so, widespread stocks traditionally get something like 12% annually over the long haul, how you mix things up really just depends on your level of comfort with the risks involved.

I only mention that because pretty much any type of investment account will have a petrifying number of choices as to what you can put your money in. It freaks most people out more than any other part, what if they make a mistake? Are they going to lose their money? Can they trust the guy/gal who’s trying to push them one way or another? The important thing is just to get it started, the large majority of investments presented will make money.

I used to try and help people with their retirement accounts (401k’s in my case) by phone for one of the major investment companies. When people were first getting started I’d try to get a feel for 3 things.

1) How long is it really going to be before you need this money? There’s a lot of good reasons to get at your retirement money before retirement and some are protected against extra taxes depending on the type of account and the reason. For example, a lot of folks will take some out to put a down payment on a house or go back to school. Be honest and figure out how long you want to leave it alone.

2) How comfortable with risk are you? Without getting too into a personality test, most people know if risk freaks them out or not. Are you analytical about money or emotional? Are you going to check on your account every week online, or glance at statements with the thought that the money doesn’t exist to you for another 20 years?

3) What else do you have going on investment-wise? You (nikki) kind of already answered this but it’s something I would generally try to establish. If someone was putting all their extra cash into their small business they’re trying to grow they already have some high risk/high return cash out there. Maybe take a safe route with this just in case. The opposite is true if you already have some cash tucked away in savings.

This is getting way too long, so I’ll wrap it up by saying the longer you have, and the higher tolerance for risk you have, the more you should mix higher risk (read stock based) investments in. It just makes mathematical sense

Really though, you’re a smart young lady, read one book and you’ll use the information for the rest of your life and feel much more informed when interacting with whatever company you use.

And you won’t have to listen to long-winded flunky ex-401k reps for information :P

wundayatta's avatar

You have a lot of good advice here. I’m wondering if you want to read all the financial advice stuff, or if you’re trying to do it more simply. My friend gave me Jane Bryant Quinn’s book. It covers retirement, savings, stocks, mutual funds, insurances of all kinds and much more.

Anyway, the simplest thing to do is mutual funds. I recommend Vanguard funds because they have very low administrative costs, and therefore you earn more over the long term. They also help you a lot—explaining the difference between various IRAs. It helps you figure out what you want to do.

My advice on investing is that you have to figure out what level of risk you want. If you are willing to accept more risk, then go with stock funds. You can use an index fund (they own a little of everything, so you spread your risk around). There are various index funds—some that follow the 500 biggest firms, or the 1000 biggest, 5000, etc. Some indexes look at investment styles—high growth, stable companies, etc etc.

There are other funds that seek to provide more stability for more conservative investors. My wife likes the Asset Allocation and the STAR funds of Vanguard. The mix stocks and bonds, so that, depending on how the economy is going, you still do all right. Not great, but all right. She did a lot better than I did over the last 15 years with this strategy.

I wouldn’t do trading of individual stocks. It takes too much time to do it right. Let the professionals pick the stocks in the mutual funds. If you want to do your own mix of stocks and bonds, you can but an index 500, and a municipal bond fund. But I’d let the mutual fund company to it for you.

livingchoice's avatar

Ok lets get started. These are in no particular order. I would suggest you open a user account at www.mint.com they keep all your account in one place for a quick overview.

1. Work from a budget. List all your expenses and your income. This will give you a picture of your finances. List everything, people you owe, all bills, food, clothing, laundry, transportation etc.

2. Get a mini calendar, I got one off e-bay for $2.50 and write down the name of the bill and the amount on the date the bill is due. This will help you keep track of when things are due. I look at my calendar every day as a reminder.

3. From your budget which should have a list of everything you spend money on (cable, utilities, internet, food, cell phone, car insurance, any other service/bill) Make note of your current rate/payment and shop around for cheaper ones/options. I saved a ton of money doing this. For example I switch my $75+ t-mobile bill to an unlimited talk & text prepaid for $40.

4. If you have credit cards pay off the one that cost you the most to keep first. You can figure this out by looking at the finance charge each one carries. Pay off the one with the highest finance charge first. Transfer high balance/finance charge cards to a 0% card to pay them off faster.

5. Start a savings account. Put away something even if it’s just $5 a month. It all adds up in the end. Better yet have it direct deposited from your paycheck. Do not have a card for the account you use for your savings. This will make it harder for you to spend it.

6. Don’t walk with a lot of cash in your pocket to curb unnecessary spending.

7. Use coupons when shopping to save even more and stretch your dollar.

That’s all for now. Good Luck!

Skaggfacemutt's avatar

Your first step, without overwhelming your disorganized mind, is to open a savings account and put a manageable (small) but set amount in it every payday. Don’t take any out, ever, for any reason! If you can do just that much for an extended period of time, then you are well on your way, and might want to implement some of the other steps listed above.

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