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Empowering your money

Are you in the red or green when it comes to saving?

Aaron Clarke is a certified financial planner and wealth advisor at Halpern Financial, a fee-only, independent, fiduciary wealth management firm in the Washington, D.C. metro area.

It’s all too easy to compare your life with someone else’s — whether it’s your co-worker, ex, or that acquaintance from high school you follow on Instagram.

Your dream may not be the traditional house in the suburbs with a white picket fence. Instead, it might be traveling to Bali one week and Barcelona the next. Either way, those dreams may make you want to splurge, potentially using money you really don’t have.

Before you do, consider if your financial picture is in the red — not a good sign — or if you’re saving enough green.

3 signs you may be in the red

A woman struggles to fill out tax forms.
Three in 5 of young adults between 18 and 29 say their parents still chip in for household expenses, according to a recent study from the Pew Research Center. (Photo: Getty Images)

You don’t have an outlined budget

Living month to month works fine until it doesn’t. Don’t allow an unexpected expense to throw you into debt.

If you haven’t set a budget and tracked your spending for at least three months, you probably don’t have a good understanding of where your money goes. Once you understand your spending habits, you can identify where you tend to overspend, or if there are annual or quarterly expenses you can slowly save for throughout the year.

Your parents still pay some of your bills

Student loan debt, high costs of living in major metropolitan areas, and expensive basic healthcare, and pricey childcare costs are all headwinds keeping many young people from getting ahead financially.

Three in five of those between 18 and 29 say their parents still chip in for household expenses, while two in five say they get money for education expenses and rent or mortgage payment from mom and dad, according to a Pew Research Center study last year.

What would it take to become financially independent? Cutting costs is a good thing to do, but it only gets you so far. It’s not just about getting more slices out of the pie; you need to make the pie bigger as well.

Perhaps you need to invest in your skills to attain a higher paying job, or you have an area of expertise that would allow you to create your own side hustle.

FOMO gets the best of you

Whether it’s leasing a Tesla, traveling on a whim, or always having the latest and greatest smartphone, there will always be newer, better things to spend on. The ironic thing is: The more you plan ahead and save, the more flexibility you have to splurge on these items!

3 signs you’re saving green

You don’t notice payday

If you have a good cash-flow strategy, you don’t feel anxious about your spending in the days before your paycheck hits. You have enough to cover your needs and even weather a month with more expenses than usual.

How do you get there?

Figure out how much you spend in a month, and keep at least that amount in your checking account at all times. Think of this number as “zero” in your account and don’t dip below it. Also, keep at least two months’ worth of your expenses in a savings account for emergencies — more if your income varies from month to month.

GORHAM, ME - NOVEMBER 20: Krista Boylen completes homework in her bedroom in Gorham, ME on Thursday, November 20, 2014. Boylen is a high school senior, and in the midst of deciding on colleges. Like many in her position, tuition costs are near the forefront of her decision making process, and though her parents, Jen and Bob Boylen, will assist with some of the tuition bill, they have three other children who also plan on attending college. Jen and Bob Boylen said they hope their daughter will make a school choice based upon both a feeling and financial perspective, but because their other children will also likely attend university, they know it will be difficult to pay four children's tuition bills outright. (Photo by Whitney Hayward/Portland Portland Press Herald via Getty Images)
If your parents are still paying your bills, you should start by cutting costs and looking into ways to attain a higher paying job or side hustle, writes Aaron Clarke, a certified financial planner. (Photo: Whitney Hayward/Portland Portland Press Herald via Getty Images)

You talk about money

Talking about your finances with a friend or financial advisor can help you to have a better strategy. You don’t have to disclose every detail, but learning what other people do can help you benefit from their successes and avoid similar mistakes.

Ask a friend, colleague, or family member what they would do differently if they could, and what they are most proud of in managing their finances. This puts you way ahead of most people, who never discuss finances until they get close to retirement.

A small group of African business colleagues informal office discussion in Cape Town South Africa
Discussing your finances with a friend or financial advisor can help you discover a better money management strategy, writes Aaron Clarke, a certified financial planner. (Photo: Getty Images)

You get free money!

How? By saving in your workplace retirement plan. If your employer offers to match the money you contribute to your 401k or other tax-deferred plan, you get to invest $2 for every dollar you contribute.

Also, there is even more of a benefit to tax-deferred accounts. Since you are contributing money before it’s taxed, you essentially get a discount equal to your tax rate. The amount you contribute is far more than the amount you see taken out of your take-home pay.

Effectively, you get to fund your retirement with dollars that cost between 60-70 cents each, depending on your tax bracket. There are some easy online calculators available to estimate how much your tax-deferred contributions will affect your paycheck.

Read more information and tips in our Saving section

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