Previous: Ask Polly’s Heather Havrilesky On Self-Help, Tim Ferriss, & Getting Healthier With Money
Next: 5 Ways My Budget Has Changed As A Canadian Living In The U.S



View count:102,544
Last sync:2024-06-24 17:30
In this episode, Chelsea answers your most frequently asked money-related questions, from how to budget on an unpredictable income, to her favorite budgeting tools, to how to save more money when you have nothing left to cut from your budget.

Broke Millennial Erin Lowry's books:

Death, Sex & Money:

Planet Money:

John Bogel:

Watch more of The Financial Diet hosted by Chelsea Fagan here:

The Financial Diet site:

Hey, guys.

It's Chelsea from The Financial Diet. And this week, I am going to talk to you guys about the questions that you ask TFD more than any other questions.

You guys ask them in YouTube comments, on our Instagram DMs, on our website comments, on our Hello@TFD email. These are the questions that we just get over and over and over. And some of them we've talked about on the channel before.

But I thought it would be good for us to have one place rounded up where all the FAQs can live. And that way, if you're thinking of asking them, we can just direct you right back to this video and be, like, there you go. So I spoke to our whole team.

I spoke to our editor, our social media manager, everyone to get a full range of these questions from all our different platforms. If we miss yours, we'll probably do another FAQ eventually. But here, for right now, is The Financial Diet's most frequently asked questions, answered.

What other personal finance books or podcasts do you recommend? So I absolutely am biased in saying this because, in addition to working with TFD in the past, she's also a good friend of mine. But Erin Lowry's books are very good.

She has a more basic general primer. And she also has a book that's specifically on investing. So that's Broke Millennial, and we'll link you guys to those books in the description.

But I find, personally, that she makes things really, really easy to understand. And she's also just very, very relatable and approachable in her lifestyle and her goals. She's really not to one extreme or the other in how she approaches money.

So I really find that to be very refreshing and something everyone can learn from. In terms of financial podcasts that I personally really enjoy listening to, I really personally like Death, Sex, and Money. I like Planet Money.

I like listening to things that are a little bit more journalistic in nature, often that will talk about more of the sociological aspects of money. I find that very fascinating. I would also say for books, in terms of my personal approach and theories, I learned the most and have adopted the most from John Bogle, who is also often referred to as the father of index funds.

His approach to investing, I found to be really thoughtful and illuminating. And I think, if you're someone who's used to thinking of investing as a concept, in the sense of choosing individual stocks and putting your money in them-- and those companies going up or down in the market-- which is how I think a lot of people think of investing, and how I used to think of it. I think it's a really, really good-- his books are very good primers to getting out of that mindset and learning more about what it means to invest broadly in the market in general, and really just understanding the market itself.

So I highly recommend Bogle. What are tips for people who don't have the same income every month, people like freelancers, service or hospitality workers, et cetera? Two big tips.

One, always operate your budget on the lowest amount of money you can expect to earn in a given month. Always make your budgets, your estimates, your projections, your spending categories based on a bad month. And let a good month be a pleasant surprise, but never bank on it.

Because if you're making your budgeting numbers around an idea of a month that's more flush, you're definitely not going to meet that every single month. And you may find yourself having to take money out of your emergency fund or elsewhere to supplement your spending. So that's number one.

Number two is anytime you're doing averages on your actual income-- let's say through freelancing or through the service industry, you earn $60,000 in a given year. That probably means a bunch of money one month, a lot less the next, middle amount the following month, et cetera. But when you're doing a budget, you're often going to just divide that number by 12 and make each month be that budget.

But that's really not how it works, particularly with freelancers. Just because you complete some kind of a work project on a given time, you are often not going to get paid for that work for months after the fact. So learning to not just average out your income and plan as if each month is consistent, is also very, very important.

I would also say, particularly for service workers or people who get a large amount of cash, to do everything in your power to get that cash out of your hands as immediately as possible. If it's an option for you, for example, to stop by on a daily basis to your bank with an envelope of cash to deposit it, or whatever you can do to make sure that you don't have it floating around. Because I know from experience, having worked in the service industry, that it is so easy to spend that cash and to never have even accounted for it in the first place.

If you're getting a payroll check, at the very least, your bank has a record of that money actually at one point belonging to you and then going away. Whereas, if you just get a handful of cash at the end of the night, and you take off $100 to go spend at the bar with some of your co-workers before you actually make it to the bank, you never have a record of that money coming in at all. Now, obviously that makes you now be deceptive on your taxes, because you're reporting a lower income than you actually took.

But also, mentally, when it comes to your savings, you act as if that money never happened. So you don't even feel bad about spending it. So definitely getting the cash out of your hands as fast as humanly possible is so important.

Also please do not lie or cheat on your taxes. Please do not, that is bad. Do not mess around with the IRS.

What are some tips for people who are trying to pay off debt and already don't "waste" quote, unquote, money on things like $5 lattes? I totally hear where this question is coming from because so much of personal finance advice is predicated on the idea that you're already doing something wrong, in which case it's a lot easier to make those better decisions and/or take out the things that you're doing wrong. A good example obviously being things like $5 lattes.

But let's be clear, a ton of Americans are living paycheck to paycheck, do not have savings, are not able to do things like spend money on $5 lattes to begin with. So that advice to them is useless. On a more societal level, I think we all need to advocate for real change, if we want to get to a place where we're not all dealing with this enormous student loan debt, for example.

Because-- it can't be up to every individual person to scrape and radically change their life and work down their living costs to zero in order to pay off tens or even hundreds of thousands of dollars of student debt that they've spent just to get an education. We have to get to a place where education doesn't bankrupt people, or a medical emergency doesn't bankrupt people. But in the meantime, you have to be practical.

And unfortunately, a practical answer here, is getting a side income of some kind. And I know that that answer feels kind of shitty and not fair. And you're already working hard, you're already saving a lot.

You don't want to have to pick up a couple of side jobs here and there. You don't want to have to take on a new skillset or whatever it may entail. But that is the honest to God truth of the best way.

If you have a fixed income of some kind, like let's say you have a salary, you're not going to go beyond that. You might get a bonus once a year or something, but you're not really going to go beyond that. And if you're already really cutting down your lifestyle, and you don't see more places to cut that wouldn't seriously impact your quality of life, you should do everything you can to get an additional stream of income.

When I was in that position, when I was paying off all my defaulted stuff, I was 22. I was working full time as an au pair. I went to school.

I was writing on the side. I wasn't yet making money from writing. I was writing articles for free every night, gotta love that media industry.

And I also was picking up, in addition to that, tutoring jobs-- because I knew that that was going to be the only way to make the money that I needed to make. And it sucked. It was terrible.

I hated it. But the truth is that that's just the way it has to be. Both Lauren and I, in the first two years of TFD, were giving our all 24/7 to TFD, and also did various odd jobs before and after work or on the weekends to help bring in income.

So it's not a very satisfying answer. And I agree with the general sentiment that we should get to a place where we're not all asking ourselves this question constantly of how do I deal with this debt. But in the meantime, be pragmatic.

And that's kind of the ethos of TFD. The system is not perfect or fair, and should change in a lot of ways. But in the meantime, we all live in this system, so let's all take steps to make our lives as good as they can be.

Sorry that that answer is not more fun. What should I look for in a bank when setting up a checking or savings account? So there's a lot of factors to consider.

For example, I am someone who travels internationally a decent amount. So a bank that has a partnership with a bank in the country that I go to a lot is important, because that means you don't have those fees when you take out the money-- or at least very reduced fees. Some people are all about maximizing that interest with things like a high yield savings account.

That could possibly be your concern. A lot of people want to do things like support a credit union, for all different kinds of reasons-- both ethical and financial. So there are just tons of things to consider when picking a bank that's right for you.

Definitely do your research. Decide what is your priority. I would recommend, personally-- I mean, obviously if you're doing a brick and mortar bank, to do a bank that has convenient locations, because there are a lot of advantages to be taken of actually going into the branch and speaking to a human being.

They actually have people there who help you and can help with these financial decisions. But everyone's going to have different needs. So just make sure that you're really asking yourself the question of, what does your financial life look?

And what are your goals with your bank? What is your advice for when you're moving out for the first time, especially into an expensive city? Always spend as much below your means as possible on housing.

When I first moved to New York, we were spending up to the maximum that we could afford every month for our rent. And it really, really impeded our savings goals. And it really took us off track for a lot of other things that we wanted to do in those first couple of years.

And we picked that apartment because we wanted an apartment that was really close to my work. My husband worked out of town, so it didn't even matter where he was. But I wanted to be able to walk 30 seconds to work.

It was a really hip area, with lots of bars and restaurants and stuff like that. And so we paid a lot of money. I think we paid $2,500 at the time for our rent, plus we had some utilities and bills and stuff.

And I was not earning a lot of money at all. I can't remember exactly how much I was earning when I moved, but I was like $30-something thousand. And my husband was probably earning-- I don't know, like $70,000, $80,000-- something like that.

But anyway, so $2,500 was really the maximum that we could afford. I was also still paying off some debts. And that was over six years ago now.

So it definitely-- I was very ignorant about New York. And that wasn't the first time I'd ever moved out of my parent's house. But it was the first time that I was living with a romantic partner.

And it was the first time that I was moving to a new city all by myself, that wasn't associated with school or something. So yeah, I made that mistake in a big way. And that's very common for people to make that mistake when they first move to a city, or when they first get their own place.

Now, we really go out of our way to rent a place that is very far below what we could afford to pay-- because, a, you're renting. So it's not like you're creating equity in the home that you own. It is still like-- yes, you need to live somewhere.

But it's still, you know, you're not really investing in something when you're renting. So that's one consideration. Our money is not being used wisely in that regard, so there's other places we should put it.

But also it just frees up a lot of stress. If one of us were to take a big hit to our income, for whatever reason, in the next year or so, we would still be able to make rent. And we can put a lot of money to retirement savings.

And we can put a lot of money toward travel and toward other goals. We're no longer extremely tethered financially to the cost of our apartment each month. So that is definitely the biggest recommendation.

Because you'll always-- you have your whole life in that city-- and your whole adult life to move into your dream space. You don't need to do it right when you first move there. And the other thing is definitely, if you're moving into a big expensive city, that can be a huge drain financially.

But one of the things that it really offers is so much free stuff. There's going to be a lot of time there's free different kinds of transportation, or very inexpensive transportation. There's going to be stuff like free museums, free cultural events, free meet-ups, amazing libraries with tons of resources.

There's a lot of advantages in big cities. And if you're smart about how you use it, you can really use that to work down your cost of living. Also for anything like side income, there are tons of opportunities for that to pick up and drop off as you need.

So I would really encourage you to lean into what is good about the expensive city, rather than just draining your money on expensive happy hours or whatever. Oh, also just don't go out that much. I used to go out all the time when I first moved to New York.

Like every other day I would go to happy hours with my co-workers after work, or I'd go to restaurants or concerts or stuff like that. And I was already spending way too much money on my rent. But I was, like, I got to live that New York City dream, baby.

And now it's, like, hell no-- I got to live my hanging out in my apartment dream. What do you recommend for tracking your finances? I know it sounds like I'm being paid to say this, but I don't have to say this-- Mint.

I've used Mint for over six years since, like since I moved to the States. And it's the best. I love it.

I still use it all the time. Can't go wrong with Mint. That's my recommendation, genuinely.

How did you start a financially stable business? I and my co-founder, Lauren, were able to not take a salary for two years, because we both had spouses who earned enough money to support the both of us-- and because they had good health insurance that we could be on. We also had other advantages.

I didn't have student loans. Lauren was living at home with her parents. We both did side jobs.

But it definitely-- that was the number one thing that allowed us to get off the ground. And then as far as the company building on itself and becoming profitable, that's really just a question of-- we've always operated as a business below our means. We are very careful to not overspend.

We don't pay ourselves-- like the executives don't pay themselves exorbitant sums of money. And we definitely operate in a very, very sustainable way. We fund things generally before we produce them.

So it's just slow and steady wins the race. I mean, it took us a long time to get into an office. And then it took a long time for us to get out of a co-working space and into our own office space.

And each of these decisions was very slow and methodical. But like I've mentioned on the channel before, we pay our office year to year. So we knew, going into getting that office, we know we can afford this sight unseen for an entire year.

That was a decision for us that was totally, totally sustainable and feasible and had very little risk associated with it because we had that money. And that's how we really try to make every decision as a company. So we really operate on a budget as if it were a personal budget, and we stay under it.

Any tips for setting kids up with good financial habits? I assume you mean children in this, like under 18. Have them make a budget.

Even if they get a little allowance or something, make them make a budget and track it and have savings goals. There's no reason that someone under the age of 18-- I started working a part time job, that was full time in the summer, since I'm 14 years old. I had $12,000 in the bank by the time I was 18, which I spent entirely on frivolous bullshit.

But if I had been a responsible human being, that would've been a great little nest egg for myself. But yeah, I definitely would recommend, if a child has any money-- even if it's just their Christmas card money or their babysitting money, make them make a budget. Sit them down, go through it with them.

Make them understand what is retirement? What are taxes? Explain these concepts.

Have them watch The Financial Diet. Buy them The Financial Diet book, available at all bookstores. No, but in all seriousness, teach kids about finances.

They should be participating in it from a young age. Is there actually a specific amount of money that I should have saved by 30 years old? "Should" is such a silly word in finance. Like, OK, what does "should" mean?

Yes, if you want to retire by age 60, let's say, and you want to take out a certain number each year and only live on-- I think it's the 4% rule or whatever. If you want to have that number, that's very literal, right? It's got to be, like, $1.4 million or something.

Anyway, I don't have the numbers in front of me. But long story short, if you want to retire at a specific age, have a specific amount of money to live on each year, and want to do it in a sustainable way-- yes, that is a specific amount of money. And calculating things like your investment horizon, your rate of deposits each year, the market-- you can extrapolate that to be a certain number by 30.

I'm sure you've probably heard something like $100,000 saved for retirement by age 30. So yes, in a very literal sense, if you have certain goals there is a target amount to have saved by target ages, because that's just math. Right?

But here's the thing. For many people, they are heavily in debt at 30 or very underpaid at 30 or have a ton of outstanding financial responsibilities. Or maybe they have to support a parent.

Or maybe they got into a car accident that left them with medical bills. There are so many external factors that could be affecting your financial situation, that those kind of numbers are completely unrealistic for you. So if it is within your realm to plan for retirement in an extremely on track, numbers-driven-- like, I'm going to have $1.5 million in the bank at retirement-- if that is feasible to you, awesome.

And then you have every right to be like-- OK, to be on target, I have this at 30, this at 35, et cetera, et cetera. If that is not feasible to you, for any number of reasons, thinking in those terms is going to demoralize you and is going to make you feel depressed. And it's going to make you feel like you're not a real adult or that you're a failure.

And that is often going to further derail you in your financial goals. So learning to tune out what doesn't apply to you and to focus on the goals that are sensible for you and that you can actually attain, is so important-- because that's how you stay motivated. That's how you snowball these good decisions and how you build something sustainable.

If, let's say, you are in a really precarious financial position and you're almost 30, you could say-- my goal is, by the time I'm 30, to have at least $1,000 in my emergency fund. And I'm going to do anything it takes to get there. I'm going to work extra jobs.

I'm going to cut out extra expenses. I'm going to move in with my-- whatever it may be. And if that's what is realistic to you, if that's a reach goal for you at this time, you should feel proud to have done it at 30 and should tune out that advice that says-- oh, if you're not at this really, really, really great place at 30, you're failing.

You got to do what's realistic for you. And you got to learn the difference between best case scenario and realistic for you. Last question, is there a right way to combine finances with my significant other?

There is no one right way. Some people prefer to have entirely separated finances. I think that's not a great idea if you're married, for a variety of reasons.

But that's a personal preference. You could very well want to do that. Some people merge their finances totally.

Some people have merged finances and then also a few separate things. I generally think it's best to have, if you're married, mostly merged finances and a few accounts that are your own-- whether it's just for your fun money or for getting each other gifts or surprises or whatever it is. It's good to have your own.

But I generally think merging is better than not. When you're married, there are a lot of advantages to that. And also it just makes life a lot easier than maintaining two completely separate sets of books, and also having to copay on absolutely everything you pay for.

But if you're not married, I would be very cautious about intermingling. As I said, if there is a question that we didn't have a chance to get to today, but is always on your mind for TFD, make sure to leave it in the comments, and we will do another one of these soon enough. But for now, as always, thank you for watching.

And don't forget to hit the Subscribe button and to come back every Monday, Tuesday, and Thursday for new and awesome videos. Bye.