When we started the BudgetBakers blog, we were clear about one thing — we wouldn’t offer unsolicited advice or preach about the one-right-way to manage money! Why? Because, we know that there is no such thing. We respect each of your money management systems and what we offer are simple, yet intelligent solutions to make this process easier for you.
We believe that a lot of learning happens by asking the right questions. So here’s presenting our new interview series, Talking Money, where we seek out the best minds in the industry and ask them questions we know you’re eager to have answered.
Kicking off this series is millennial money expert, award-winning blogger, host of the Mo’ Money Podcast and founder of the hugely famous Millennial Money Meetup, Jessica Moorhouse. We spoke to Jessica about money mistakes that millennials make and how to get started on your path to a richer, financially independent life. Excerpts from our conversation:
Hi Jessica! Let’s start right at the root of the problem. Having been in touch with millennials and their way of doing money for so many years, what do you think is the biggest and most common money mistake they make?
I think the most common money mistake millennials are making right now is just not paying attention to where their money is going. Compared to other generations, I think millennials are great at figuring out ways to earn more or extra income (everyone’s got a side hustle these days), but when it comes to budgeting, saving or tracking their spending, they have no idea where to start — so they don’t. That’s a big reason why I am so passionate about what I do. I’m on a mission to educate millennials about how much of an impact these very simple money management tactics can have on their daily lives.
What is the biggest lesson you have learnt, from the millennials you have met, on managing money?
You can always make more money.
Millennials are incredibly resourceful, which brings me back to the side hustle trend in my generation.
Many of us got a rough start by starting our careers during the recession, but instead of complaining about our bad luck, we’re doing whatever we can to make things work. I feel like in older generations there was a bit of shame to have a second job. As if there was something wrong with you because you couldn’t earn enough at your main job. But nowadays, it’s fairly common for millennials to have something on the side to help them earn more so that they can continue to afford to live in the city, travel the world or buy their first home in an over-priced real estate market.
For someone who is just starting out managing their money, what would be a few good first steps?
Just understand that within personal finance, there are four main elements: budgeting, saving, borrowing and investing.
Start by crafting a realistic budget that fits your financial goals, then add in paying yourself first to prioritize saving over spending.
Once those are covered, it’s time to look at your debt situation. Do you have debt? How much interest are you paying and what’s your deadline for having it all paid off? After setting up a solid debt repayment plan, it’s time to figure out how you want to invest.
The sooner your start investing the better, and you don’t have to be rich to invest.
You can start with just a few hundred dollars, and now it’s easier than ever to invest. You don’t have to go to a traditional bank anymore and talk to a suit about mutual funds. There are a number of ways you can DIY invest or use a robo-advisor online.
Now, this may sound like a lot to add to your to do list, but I think it’s always important when you feel overwhelmed to remember there are four main components to money management, and just tackle them one by one.
Taking things a bit slower, what are the first things they can do to trim their spending?
The first thing you need to do to trim your spending is track it! Go back at least 2–3 months and look at everything you’ve spent and categorize each purchase. This way you’ll get a clear picture what your spending habits are. Then, you can start cutting the expenditures that don’t add any value to your life. You may notice that you have a few subscriptions you never use, a gym membership you forgot you had or have a tendency to eat out 5 times per week. These are things you can easily cut or minimize, and will save you a substantial amount of money in the long run.
Coming to the perennial question: What do you think should be prioritized — saving or paying off debt?
Neither. I don’t believe it has to be one or the other.
If you put all your money to paying off debt but aren’t saving, what’s stopping you from getting into more debt because you don’t have an emergency fund to help you out?
And if you put all your energy into saving and paying the minimum amount on your debt, it’ll take you years to become debt-free, not to mention all the interest you’ll be paying. You need to do both. It may mean it will take you longer to be debt-free, but you will feel like you’re making progress by saving at the same time. Believe me, I’ve talked to so many of my blogreaders and Mo’ Money Podcast listeners who’ve paid off thousands of dollars in debt and they all agree saving and paying down debt at the same time is the magic formula.
Many millennials don’t save for retirement these days. Instead, they save for short term goals like travel. What’s your take on this?
We definitely are a generation who likes to think in the present and not so much into the future. This is something many of us need to work on, especially as we continue to grow older.
I think the big reason why millennials don’t think about saving for retirement is they don’t really understand retirement.
They have this idea of being grey-haired and sitting on a porch somewhere, and it’s just not something they can relate to. The thing is, that vision that’s advertised to us by all the life insurance and retirement saving firms doesn’t actually depict what retirement will look like for us millennials.
Most of us probably won’t retire in the sense that we’ll stop working and just live off our retirement savings. I believe retirement will be when many of us start our next career. We are the side hustle generation after all! I believe that if millennials had a more realistic vision of retirement that aligns more with their current values and beliefs, there would be a greater motivation to save for the future.
Do you personally follow a budget? Or how do you manage your money? What’s you system?
I absolutely do have a budget. It’s evolved as my career and my relationship with my husband has evolved, but I’ve used a budget for the last seven or so years. And, hands down, it is the reason I am where I am today — debt-free, owning my own home and working for myself.
My system is fairly simple. My husband and I approach our finances as separate, but together. Everything is separate except for our joint bills and joint financial goals. Then we track our spending and net worth every month and have a monthly money meeting to discuss where we’re at, what changes we need to make and if any of our goals have altered. Honestly, once you’ve got a system set up like I do, you don’t have to spend more than a few hours per month thinking about your budget or spending. It’s great!
Could you give your top three tips for saving money?
Spend less than you earn, pay yourself first and have clear and realistic savings goals. I think that last one is the most crucial.
Without goals to save towards, you just won’t save.
You need something really enticing and exciting that will motivate you to keep moving forward and be cautious with your spending.
A lot of millennials are not too tuned in about investing. When, according to you, is a good time to start investing?
Yesterday. And if not then, then right now. There is seriously no time like the present, and the sooner you start investing, the sooner you’ll be earning interest and the sooner that interest will compound into more money.
What’s the best personal finance advice you would give your younger self?
Tracking my spending honestly. For years, I was good with my money, but I had no idea where it went. At the first job I ever had after graduating university, I still lived at home and had no expenses, but somehow throughout the whole 4-month contract, I spent almost every dollar I made. And, if I had tracked my spending and been more conscious of it, I know I would have been able to pay off my student loan way sooner.
And, finally, what’s your current personal finance goal?
My current goal is to match last year’s income when I was working full-time and had my side hustle. This year, I’m completely self-employed, so I’m working around the clock to earn as much as I did last year to prove to myself (and others) that quitting my 9 to 5 was the best decision I could have ever made.
For more such advice from Jessica, follow her blog, listen to the Mo’ Money Podcast or book a place at the next Millennial Money Meetup.
Over to you…
So did you enjoy this conversation? Write to us in the responses section below with suggestions on whom we should feature in this interview series next or if you have any questions you would like us to ask them. We’re waiting to hear from you!