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How To Develop a Money Mindset

how to develop a money mindset

Note: This is a guest post written by Jacob of Dollar Diligence

Having a financial background is always beneficial when it comes to managing your money, but you do not have to have a financial background to be able to handle your expenses.

In fact, I did not have a solid financial background or any type of economics training when I finally decided to tackle and pay off my student loan debt.

I just did it.

In this post, I want to share some tips about becoming financially savvy. I want you to be able to benefit from the advice and I want you to feel confident in your ability to manage your finances and break up with your debt, if you have it.

Don’t Give in to Your Wants

It can be easy to want, want, want, especially when the newest TV hits the shelves or when the latest phone is ready for purchase. Yes, we all want these items, but we do not need them. In fact, that TV you have in your home probably works just fine and your phone does exactly what it is supposed to.

While it is okay to indulge a bit, you do not want to overspend or overindulge. You need to learn how to be frugal. If you do, you will quickly find that you run out of money and you do not have the funds you need to pay off your obligations.

Don’t Dwell on Your Past Financial Problems

While your financial problems from the past will still exist, there is no reason to dwell on them and doing this will only cause you more financial stress. It is important to stop the habits that caused your financial decline in the first place, but they do not have to rule your life. You should take a step back and look at the whole picture. This way, you can determine what you need to do differently and how to do it.

You want to learn from the mistakes you made and avoid doing it again.

For example, maybe you used a credit card incorrectly and racked up a ton of debt. Once you have the opportunity to get a new card and a second chance, don’t spend your plastic money wildly. Or, maybe you have missed student loan payments in the past, but are now finally set on paying them off.

Don’t fall into old habits. Come up with a goal, create a plan for achieving it, and don’t settle for anything less.

Have an Emergency Savings Account

It is scary to see that most Americans do NOT have a savings account and those that do often carry a balance of less than $1,000. What happens if you were to lose your job or you were to experience a serious disaster. Most people would have nowhere to turn and they would be left in a serious bind.

It is important for you to make sure you plan for your future and that you start an emergency savings fund. Most experts recommend that you have three to six months worth of bills and expenses saved up in case something was to happen.

If you decide to follow the six-month plan, how much would you need to have in your savings account? For example, if your monthly expenses are $2,300, then you would need to have $13,800 in your emergency savings fund to cover you for six months.

Invest

Do not take a backseat approach to investments or a retirement account. It is important that you have these because you will need them, especially if you plan to retire in your life. IRAs and 401Ks will allow you to start a nice retirement fund and you can even double your savings should your employer offer a plan that matches the amount you contribute.

Experts say that if you wait to invest in your retirement account then you will need to save a minimum of half of your paycheck by the time you are 40. Most people will NOT be able to this and I definitely know I would not be able to.

Be Careful with Your Credit

You credit score is not just a score and it tells potential lenders and creditors how well they can trust you to pay your obligations. If you have a poor credit score, you will find it is difficult to take out an auto loan or mortgage, be approved for student loan refinancing, or even rent an apartment.

Credit cards, late payments, and loans all affect your credit score, so if you plan to take out any loans or borrow any money, then you need to be responsible with it. Too many late payments can affect your score as well and it is HARD to recover once your score takes a nosedive.

Don’t Give Up – You’ll Get There

The most important thing to keep in mind is to keep going and not to give up. I was able to pay off $25,000 in just 15 months. I never thought it possible, but it was and I know that you can develop the mindset to pay down your debt as well. You do not have to be a financial wizard to free yourself from the chains of debt.


What has your journey been towards becoming financially savvy? How did you develop a money mindset?

Jacob is a high school math teacher by day and personal finance blogger by night. Follow his journey at @DollarDiligence!

how to develop a money mindset

But How Does It Make You Feel?

saving money doesn't have to feel like a sacrifice

Saving money is important. Duh! Right? Everyone likes to save money. Unless you’re one of those lucky souls who won the lottery and ride your Ferrari off into the sunset. For the rest of us, we like saving money.

At least I think people do. Most people would give a quick yes when asked if they wanted to save more money. If you read any of those “x tips to save more” articles on the interwebs, then you know the routine.

Cut your cable subscription, brown bag your lunch, and make water your friend rather than your carbonated pal, Coca Cola.

These are all often repeated tips. Why? Well, because they work. Lots of people do or have them and they can gain from cutting them out. The obvious gain being the saving money part. I mean, do you really need to buy a $10-15 takeout lunch every day of work? I don’t think so.

After doing the cutting back, you’re left with a nice little pile of newly available funds. You usually have a few options: put the money in your emergency fund, invest it, or use it to pay down debt. All solid options.

Making yourself be good with money usually starts with cutting back. The art of really understanding your wants vs. needs. The benefit is clear: you save more money! *fist pump*

Are there any other benefits? This is where people usually draw a blank. They’ve saved their money. There doesn’t appear to be any other advantages.

Well, pull up a chair because your impromptu saving money therapy session is about to start. Put your phone away, don’t check social media, and grab a piece of paper for notes. Let’s begin with a story.

For a long time, I struggled to give up my excessive TV viewing habit. There are just so many good shows! I used to be super into TV. I watched it, rewatched it and loved going over the different plotlines and stories. I even had an old blog where I used to write reviews of movies and television.

I was hooked.

While I’ve never had a cable subscription (#millennialstatus) I did use my parents and friends subscriptions to keep up with shows. When I finally decided to cut down on my TV viewing habits, it was difficult.

It was difficult because there was nothing tangible for me to see from cutting down on my TV viewing. I didn’t have a cable subscription, so it’s not like I was saving money by cutting a bill. Sure, I did have more time in my day, but the added time hit me like it hits most people: I didn’t know what to do with the time.

I sat around, did some extra writing, read some websites. Nothing substantial. However, through a slow progression, I started to see positive results. Without spending so much of my time watching TV, I was able to start studying Spanish again, I picked up a hobby in photography, and I started freelancing again.

Check out some of the photos below that I’ve gotten of Australia so far!

Australia work holiday visa
The South Australian Dingo Fence. Longest fence in the world!
Australia working holiday visa
Squinting while at The Breakaways in Coober Pedy, South Australia

 

Cutting down my TV viewing helped me feel better.

Every day I had something to look forward to. Instead of being huddled by my laptop watching the latest episode of Casual, I spent my time on Duolingo doing Spanish lessons. I watched YouTube tutorials to improve my photos. I sent out more pitches for freelance gigs.

To be honest, all of those new activities still involved me sitting in front of my computer, haha. However, I’m building my identity capital. Doing stuff that fuels me and really makes me feel good (rather than just that ~shook~ feeling I got after binging the latest season of Orange Is The New Black).

The same feeling came over me when I started cooking more rather than eating out all the time. Back when I was living in Thailand, it was easy for me to eat out. I didn’t have a kitchen (yes, really 🙁 ) and eating out in Thailand was inexpensive. I could usually get a meal for 50 or 100 baht ($1.50-3.00 USD). Imagine my shock when I got to Sydney, Australia (a.k.a one hella expensive place) and I realized eating out would break my budget…a lot.

Side note: visit Thailand rather than Australia if you wanna stretch your dollar further!

Once I started actually learning how to cook, my food expenses went down. It would have been easy for me to look at the savings at the ultimate be-all benefit, but it wasn’t. The biggest benefit was I started to feel better. Turns out, processed snacks and soda all the time really isn’t good for you :).

Ask yourself how your expenses and cutting back on some of them will make you feel. Sometimes you may have to cut back in order to gain more (ex. Cutting back on TV to make more time for freelancing). Maybe it will prompt you to pick up something else like a new hobby or activity. Whatever it is, don’t just see the cutting back as a way to save money. It’s always more than that.


Saving money is about more than just saving money. How does it make you feel? Click though to read about how to approach cutting back in a positive way.

Not Another Emergency Fund

how to build an emergency fund

Can you ever have too many blog posts talking about emergency funds? Personally, I think so but others might disagree. The “blog post talking about an emergency fund” has been done over and over again in the personal finance world. And this post is about to be another one 🙂

When I first started reading personal finance blogs, I was a soon to be university grad who didn’t have a lot of money in savings. I read countless times about the importance of an emergency fund and why everyone needs one. It helps in case of unexpected expenses! Job loss! Your car breaking down! You need it!

I liken the experience of it to that of being told to eat my vegetables growing up. It should be something that happens but I still don’t listen to it all that often. I mean, you have to actually set aside money for some hypothetical event. When you have things constantly eyeing for your attention at the current moment, saving money for future emergencies can fall through the cracks.

However, I’ve always known of emergency funds. Even as a money newb who first started reading personal finance blogs, the concept of money set aside for emergencies was never foreign to me. I don’t think it’s foreign for most other people either.  

Even as a money newb who first started reading personal finance blogs, the concept of an emergency fund was never foreign to me. I don’t think it’s foreign for most other people either. 

People know unexpected expenses pop up. They know they should have money set aside for an emergency. The problem lies in people’s perception of an emergency fund. Many people don’t fully know how an emergency fund works (problem one) and they usually underestimate the amount they need in one (problem two). 

For the longest time, I thought an “emergency fund” was the small amount I had in my savings account. I also thought it was the leftover “buffer” amount I had in my checking account after I paid all of my bills. Most people think of emergency funds along this same line.

Having this way of thinking led me to dip into my savings account for not so critical reasons. I would take money out when I really wanted to buy some nice, but unnecessary, thing or when I would go on a vacation and need money for it.

Constantly seeing the money sitting in my bank account made me feel okay to spend it. Everything about my way of thinking of emergency funds was misguided.

An emergency fund is a dedicated account used only for real emergencies, like a job loss, medical bills, car repairs, and so forth. It’s not for when you really want to buy new clothes. It’s not the money that’s left over in your bank account after you pay your bills. That’s a buffer, not an emergency fund.

For the best chance of growing and keeping an emergency fund intact, people would be better off putting the money in a savings account at a bank different from where they do their day-to-day banking. Doing this helps when you’re someone who isn’t a natural saver.

Online banks come to the rescue with this. They’re best when it comes to holding an emergency fund. Ally Bank’s 1.00% APY for accounts blows past the traditional average 0.06% APY.

How much to keep in an emergency fund? There’s two common rule of thumbs: $1,000 in a starter emergency fund, then leveling up to 3-6 months of expenses stashed away.

Do what makes you feel most comfortable. From my senior year of high school all the way to after graduating university, I had the same old Ford Focus that I had bought on my own. Fully paying for my car at age 17 felt awesome but having to go through car repairs every year because the car was old was not so awesome.

My car situation and job situation were the two biggest things that influenced my emergency fund. It’s why I kept way more than $1,000 in an emergency fund while I was paying off my student loans.

Two big reasons I want to keep a good sized emergency fund now is because, one, I will be moving back to the states in the next year. That’s gonna entail moving around and getting a new job, a.k.a major money vacuums.

The second reason is because of an experience I’ve long fantasized about since I was a kid: buying a car with cash. I got a taste of this when I bought my first car at 17 and paid for it in full on my own. The current car I use, a Smart Fortwo, is completely off.

So, for the next few years, I won’t be buying a car with cash, but it’s still on my list. Walking into the dealership, they ask me how I’m going to finance the vehicle, I put on sunglasses and gaze into the distance and say “I’ll pay with cash.” Then they’ll look in shock as I put down the cash or write a check (<–do people still use those?).

I’ve been watching too many movies, but yeah, that’s kinda how I see it playing out.

Overall, I keep a good sized amount in my emergency fund because I’m aware of my own situation, spending habits, and priorities.

How much do you keep in an emergency fund?

Do You Have Your Best Interest In Mind?

Is it really you, though? I’ve found whenever you don’t have a set of values and plan in place, it can be really freaking easy to let others dictate what’s best for you. Lesson learned? People love to spend your money for you. Especially when you don’t have any sort of plan for it.

Many moons ago, I was very stressed for a very dumb reason. Okay, maybe not so dumb. Looking at it now, it feels dumb but back then I didn’t think so.

When I was a teenager, age 18, new to college, I had this idea of how I wanted my life to look. A swift move caused me to declare my major as public relations-mass communication. The move came after I had my initial sit down with an academic advisor. 

“You need to choose a major right away. You already have enough credits that you’re technically almost a college junior. Not a freshman” 

I don’t remember what I said. I might have just mumbled an ‘Oh’ and preceded to point to a major I vaguely had in mind. Public relations appealed to me because I liked finding ways to get the message out about something. Being able to improve my speaking skills (since I was super introverted) was also a plus.

My advisors in my program assured it was the best thing for me. They talked about how everyone improved their professional development so much through it. I went along with it because I thought they had my best interest in mind.

The media program at my university was a typical media one. It was a competitive fast-paced environment where people loved to be defined by their work. Getting an internship or job at a well-known company was how they defined success.

So, naturally, the best interest in mind appeared to be getting a job at a prestigious media company.

Unpaid internships were very common in the field. Following the best interest of the masses involved depleting your bank account and hastily working a low-wage job in addition to an unpaid internship. It was all about getting ahead. And this seemed like the only way.

Thrust into life after graduation, a whole lot of spendy things presented themselves. Everyone knows houses and weddings can be expensive but what about everything else? Buying furniture, getting actual kitchen supplies (rather than just eating Ramen), and the cost of attending other people’s weddings.

Since these expenses rarely get talked about, the money can have a tendency to part from your bank account without much notice.

 

A few years ago, on a sunny day, I made my way to a Mercedes Benz dealership. I was looking to get an extra key for my smart car. (Mercedes-Benz distributes the Smart Fortwo in the U.S.)

Before I could make my way to the parts desk for the new key, a snazzy car salesman started talking to me. He made a reasoning why I needed to ditch the Smart Car and opt for something more roomy and nicer. He went on and on about how I deserved it and could afford it.

Me? A person who was working an entry-level paying job affording a Mercedes Benz? LOL.

But for a moment, I thought he had my best interest in mind. He was very convincing in the way he talked and reasoned. My monthly car payment would provide me peace of mind and reliability, he said.

Remembering Chevy’s very convincing millennial-targeted car ads didn’t help. 

My dad even told me I should get a new car. They were new and reliable! He said. This was my dad. Surely he had my best interest in mind!

Luckily I never did listen to my dad about getting a new car. I kept my old one and continued to drive it. Since then, I’ve learned a car payment isn’t a common, necessary thing. I’ve also been slowly learning that my work doesn’t define my purpose or constitute the image of success. That has to come from me. No prestigious media company required.

So, who has your best interest in mind?

I wonder about this a lot. Not just for me, but for others. When you see something so much, it starts to seem normal. People finance new cars they can’t afford and way more house than they need. When you see people spending a lot of money on professional development and self-care (ugh) you start to feel like you’re doing something wrong if you’re not spending a lot on it.

I guess it’s easy to say ‘me’ when asked who has your best interest in mind. Is it really you, though? I’ve found whenever you don’t have a set of values and plan in place, it can be really easy to let others dictate what’s best for you.

People love to spend your money for you. Especially when you don’t have any sort of plan for it.


Who has your best interest in mind? 

You’re Allowed To Suck

better at managing my money

I’ve been slacking on getting better at managing my money. I’m not really sure how else to phrase it. I’ve been going over budget and spending on things I really don’t need to spend on.

For what seems like the longest time, I’ve always felt I wasn’t good with my money. I would think about how I would be doing something but could be doing it better. I would procrastinate on doing things because I wanted to “get this thing out of the way before this other thing”.

I knew I was okay at managing my money but I never thought I was some personal finance extraordinaire. Even saying the term is widely debatable. What even makes up a personal finance extraordinaire?

I’ve always thought it was someone who kicked butt with their finances and had mastered the art of managing money. This was a person who had a rock solid six-month emergency fund, buffer in their checking account, small money cushion account for pop up expenses, and a paid off old car that they proudly drove around in. Because getting new, financed cars sucks, FYI. 

This was a person who maxed out their Roth IRA every year and was on the path to retiring early at 55. They would ride off in their convertible (preferably used, non-financed) into the sunset with their sunglasses on.

Now, THAT was the type of person I needed to be. Not someone who ordered take-out for the third time in a week and hadn’t been tracking their spending for the month.

Sometimes I suck at money.

Saving it, investing it, earning it, basically just not being better at managing my money.

I like to prioritize saving for travel and retirement but sometimes I find myself spending a wee bit too much on Starbucks and eating out. I love watching movies and sometimes I blow my entertainment budget by spending too much on movie tickets and rentals. Judging from the internet’s top productivity listicles, watching TV and movies is the devil’s advocate. Oops. So I have another strike against me. 

For a long time, I would build up an emergency fund. Then it would be quickly dashed down by some unexpected expense that would leave me feeling bad. Dental bills and car repairs are the worst. Other times the coffee and take out habit would get out of control and I would feel even worse since I knew it was something I could control.

So basically, throughout my many ups and downs with money, I always felt not near what I would picture to be when it came to being “good with money”. Sometimes I suck.

Knowing my money motivation, the ‘why’ behind my money was important to articulate, but it hasn’t been a catch-all in stopping some of my bad spending habits.

Lately, though, one thing has helped. I’ve started to realize it’s okay to suck.

I’m not living paycheck to paycheck or YOLO-ing all day every day. So at least there’s that. I’ve never dipped into my retirement account either. I still do have an intact emergency fund. I do feel bad about some of my spending but I always make an active effort to combat it. So all hope isn’t lost.

Tying my financial identity to a one-off purchase doesn’t seem rational.

As much as money is an emotional thing, once I think logically about it, I realize I’m not so bad.

Addressing the root of the sucky feeling, usually a bad spending habit, and working to prepare for it next time makes things feel a lot better. The key is to not stop and wait. Just keep going.


How do you address those feelings of being inadequate financially?

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