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
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.
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.
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