by The Skimm
For when you spend half your day responding to emails…
Play hard to get. Unless the email requires an immediate response, designate a few 30-minute blocks a day for catching up on email. That way, you can get actual work done without a “You’ve got mail” distraction.
For when your phone notifications are giving you heart palpitations…
Turn. Them. Off. Turning off notifications or putting your phone on Do Not Disturb is surprisingly satisfying. Warning: Do not panic when you finally look at your phone. It won’t bite. Hard.
For when you need a break…
Treat yourself. That means: Take a walk, read an article, grab lunch.
For when it feels like most of your day is taken up by meetings or networking…
Learn a very important two-letter word: No. It’s important to know when to put yourself first. Go to your manager and tell him or her you need a block of time to get something done. Tell a contact that this month is busy and ask to get something on the calendar next month instead. People will appreciate your honesty, and you’ll appreciate the extra time.
theSkimm: Time management makes productivity makes career success makes money. It’s physics 101. While our careers are more than just our paychecks, the paycheck doesn’t hurt. And with great power comes great financial responsibility. It’s time to talk about the piggy bank in the room.
Does it ever feel like some of your friends have taken secret classes or training on how to manage money and save? Surprise: They’re probably struggling in similar ways. If they aren’t, good for them. Insert fake smile.
“Skimm Money” will give you the good cents (see what we did there?) to make smart decisions about your bank account. You’ll learn about putting together a budget, paying off student loans, doing your taxes, buying a house, and more. This sounds like it will hurt, but everything’s going to be OK.
Things That Save Money
theSkimm on Budgeting and Savings
If looking at your bank account feels like getting back a test you know you failed…you’re not alone.
Budgeting is the key to feeling financially secure, but no one really teaches you how to do it in school. You may be wondering, “How did no one ever tell me the right way to do this?” No time like right now.
We’ve broken this up into a few categories: general budgeting and savings, paying off loans, and saving up for the big stuff. That includes retirement.
How do I get started?
Here are five main steps to making a budget. Remember the mnemonic I Go Far To Make Money.
Income: Figure out your net income. To do this, take your salary and subtract deductions. That includes things like income tax, Social Security, health insurance premiums, and your 401(k). If you have a full-time job, your employer will do this subtraction for you. You’ll see that amount as your adjusted gross income, or how much you take home after deductions. Your gross income is how much your boss told you you’d make.
Goals: Set goals. Do you want to pay off your student loans? Save up for a home? Start with one big goal and write down the magic number that corresponds with it.
Fixed expenses: Calculate your fixed, necessary monthly expenses. These are your “need it” expenses that stay fixed month-to-month. That includes rent, utilities, and transportation.
Tracking: For a month, break down everything you spend that’s not a fixed expense. These are your “want it” expenses. That includes clothes and travel. Be specific so you know exactly where you’re spending, and where you can cut down. Don’t just say “$350 on food and dining.” Instead, get all up in your receipts: coffee: $40; groceries: $80; dinners out: $110; lunches: $120.
Math Minute: After a month of stalking your receipts, subtract your expenses (both “need it” and “want it” expenses) from your monthly salary. Is that number negative or positive? Are you spending more than you’re making, or do you have some cash money left over?
If it’s positive…start saving. Calculate how long it will take you to get to your savings goal in step 2 if you save $50 a month vs. $100 a month vs. $200 a month vs….you get the picture. Experts recommend saving between 10 and 20 percent of your take-home pay. That might seem daunting, especially when you have student loans to pay off. Start with 5 percent. Even 1 percent. Just start somewhere.
If it’s negative…take a red pen to your “want it” expenses. If you’re spending too much on food, people will tell you to stop buying things that go bad before you eat them (looking at you, head of lettuce) and start saying no to big group dinners. We think you should get more granular than that. Take the top two biggest monthly food expenses from your list (for example, lunches and dinners out) and try to cut those expenses by 10 percent. If you can do that, graduate to 20 percent the next month. Keep going until you’ve chopped your two biggest expenses in your most spend-happy category in half.
I can’t decide where to cut down…
No one said budgeting was easy. Here are some factors to consider.
For the person who likes clear rules…
Try the 50/30/20 rule. Here’s how it works: Half your paycheck goes to things you need (the “need it” expenses, like rent). If you live in a major city this might be tricky to keep at just half. Another 30 percent goes to things you want (the “want it” expenses, like wine and plane tickets). And 20 percent goes to paying off debt or to savings and investing.
How much cash money should be in my savings account?
People say you should have enough money to cover three to six months’ worth of essentials (your “need it” expenses, like rent) saved up. This gives you some cushion in case you lose your job or need to take on extra expenses. People also say that by 30, you should aim to have the equivalent of your annual salary saved up. Thank you for that advice. But it seems pretty unrealistic. Start with saving three months’ worth of essentials and see how that goes.
For when you’re not meeting your savings goal…
First things first. As in, transfer your monthly goal amount to your savings account at the beginning of the month. To take it a step further, set it and forget it: Set up automatic, recurring savings transfers with your bank. Every month, your money should be making moves (from your checking to your savings).
What if I have student loans?
Ah, the debt-ridden elephant in the room. If you have student loans to repay, you are very much not alone. There is over $1.5 trillion in student loan debt in the US. And the average graduating senior has over $35,000 in debt. But since you’re a human who needs food and shelter, you can’t put all your money toward that debt.
So then how do I pay off my loans, exactly?
As soon as you can. It may take years but don’t get discouraged. Most people recommend making it a number one money priority after graduation. Here are some methods to try.
For the person who likes to check off small items from their to-do list first…
Let it snow. As in, try the snowball method. Pay your smallest debts first, regardless of interest rate. Start by listing out all your debts, smallest to largest. Pay the minimum balance on each one, except the smallest. For that one, dedicate as much cash to it as possible each month until it’s repaid. Then put that payment amount toward the second smallest debt, and so on. The idea? You’ll gain momentum by watching your debts disappear. Aaand it snowballs from there.
For the person who likes to jump in headfirst…
Sound the avalanche whistle. The avalanche method focuses on paying down debts with the highest interest rates first. It minimizes the amount of interest you’re paying overall, which can save you thousands over time, depending on how much debt you have.
For the person who doesn’t like when their meat touches their potatoes…
Keep it separate. Make a separate savings account where you set aside part of your paycheck just for student loan payments. It’ll mak
e it easier not to touch that money for other things.
Thing to know
APY. Stands for annual percentage yield, or the yearly rate of return of the money in your savings account. Accounts with better interest rates have a higher APY.
What type of savings account should I get?
It depends. Here are some of the different ones you can open with your bank.
Standard: The tried-and-true. This is the type of savings account most Americans have. Some have zero or low minimums.
Do this if…you’re starting out and don’t have a lot of money to put into the account. Interest rates are low on standard accounts.
CD: Not that kind. This is a certificate of deposit. Banks often let you open a special kind of account with better rates than you would get in a regular savings account. But you have to keep your hands off that money for a certain amount of time (usually a few months up to a few years).
Do this if…you won’t need to access that money for the period, and you want a “can’t touch this” way for your cash to earn interest.
High-yield savings account: An account where you put more in and get more back. The interest rates are often higher, but you usually need to invest a certain amount to get one.
Do this if…you have more money to invest and want the flexibility of withdrawing it at any time.
PS: You can negotiate for a better interest rate on your account by finding competing offers from other banks. Bring them up to your bank for a chance at getting a better rate.
This is a lot. Will I ever be able to retire?
Saving for retirement is kinda like eating right. It’s annoying and feels unrealistic in the short term, but it has long-term benefits. That may sound like BS but it’s true. Here are some of the retirement savings terms and concepts you’ll come across and the benefits of each.
401(k): An employer-sponsored retirement savings plan. It lets you save and invest a piece of your paycheck before taxes are taken out. You won’t be taxed on it until you start withdrawing the money (hint: That’s why you shouldn’t withdraw until you retire). Some companies will match how much you contribute to your 401(k) up to a certain amount. This is free money. If it still sounds scary to set a piece of your paycheck away, know that you’ll have options for how to invest it. One common option is to park it in a target-date fund that tweaks your investments over the years based on what year you plan to retire. So as you get older, your 401(k) spread will become less risky.
Do this if…your company offers it. Especially if they offer to match your contributions. Every company’s plan is different, so read the fine print. One example: A company might match 100 percent of your contributions up to 5 percent. Translation: For every dollar you decide to put toward your 401(k), your company will put a dollar into it too, up to 5 percent of your salary before tax deductions.
IRA: Individual retirement account. There’s a max amount you can contribute to an IRA each year—it’s $6,000 for 2019, but typically goes up a little every few years. Like with a 401(k), you decide how you want to invest it. If you do a traditional IRA, you hit snooze on paying taxes on the money until you take it out. If you do a Roth IRA, you’ll pay the taxes up front. Some experts say it’s better to do a Roth IRA, since you don’t have to pay taxes when you withdraw all that money that’s been gathering interest for years. It’s also advised to invest your money into your IRA or Roth IRA at the beginning of the year, so it has the chance to gain interest over the year.
Do this if…your company doesn’t offer a 401(k), or if you’re maxing out your 401(k) and want to put aside even more money for retirement. Or if you just want to pay less taxes now while saving up for the future.
theSkimm: Budgeting is a b-word. But it will result in the savings you need in the long run—which means extra money in the bank and cash to invest.
Things That Make You Money
theSkimm on Investing
You’ve heard “Invest in your future,” “Invest in your happiness,” and “Invest in me-time.” Great. Thanks for that.
We are told to invest in many things, but investing actual money, and how to get it done the smart way, leaves a question mark in a lot of people’s minds. Studies have shown that most millennial women feel like they don’t have enough money to start investing, and say they want to be more educated on investing before they start doing it. So here we are.
OK, then. How do I get started?
Easy as 1, 2, 3…
Stay account(able).
Open a brokerage account: You can open one online with places like Charles Schwab, Vanguard, or ETrade. To get it going, you’ll need your Social Security number and your driver’s license. In most states, you also have to be 18. Once you’ve set up an account, you’ll need to transfer money into it to start investing. Use the 50/20/30 method from before as a guide. Think of this like the garden where you’re going to plant your investments. And watch your money grow. Experts say you should check it no more than once a quarter. You don’t want to make knee-jerk decisions based on a good or bad quarter.
Phone a friend.
If you want help, you can have a real live human financial advisor step in. You can find this person through the site you used for your brokerage account. Tell your advisor what your goals are with your portfolio—what do you want to use this money for? Make sure to ask them questions like “How much risk am I exposed to?” and “What’s my all-in fee?”—if your advisor puts your money in funds managed by third parties, they may charge fees that aren’t mentioned up front.
Plant the seeds.
Start choosing the types of investments you want to grow. Green thumb in more ways than one.
What are my options?
There are lots of different crops (had to, we’ll stop now) you can choose from. Here are some of the most popular and why they might be right for you.
Mutual funds: Instead of trying to pick your own stocks, you buy a mutual fund made up of many stocks. Mutual funds consist of many stocks, bonds, or both. They’re professionally managed by investment firms. Sometimes they’re focused on a specific category of company; other times the firm tries to pick the companies they believe will perform the best. You’ll likely see mutual funds as investment options in your 401(k) at your job. But you can also buy into mutual funds on your own. These are options you’ll be able to pick in your new brokerage account.
Try this if…you want to get started but also want a financial whisperer to help. Mutual funds are controlled by a team of portfolio managers who do this for a living. You won’t have voting rights to make decisions in the fund, but that might be a good thing if you’re still getting your financial feet wet. They’re also pretty low cost. The minimum amount you have to invest may vary by fund, and can be as low as $100.
ETFs…similar to mutual funds, ETFs (exchange-traded funds) are made up of a variety of things (think: stocks and bonds). Most ETFs are set up to focus on a specific category of companies, such as the 500 largest US stocks (aka the S&P 500 index, which we’ll get into later). And unlike mutual funds, ETFs are traded daily on stock exchanges, and their prices fluctuate throughout the day. They typically have much lower costs than other investments, because they don’t require a professional to be as hands-on. They also typically have no or low minimum-investment amounts, so you can get started ASAP in your brokerage account.
Try this if…you don’t want to pay (too much) to play. This is the lowest cost option and the most flexible. Because they’re traded like stocks, you can pull out of or trade ETFs at any time during the day.
Bonds: One way for a company or the government to raise money. Here’s how it works: You give a large company or the gov money, and they are indebted to pay you back, at fixed interest rates (aka stable payments and no surprises). It’s basically a “You scratch my back, I scratch yours” situation, except your scratch turns into a ma
ssage if the investment is good. The level of risk depends on the issuer, because if you’re issued a bond from a company that ends up failing, you’ll get nada. Bonds are less risky than stocks since they’re typically issued from large corporations and the gov, and have a defined payment schedule. Your 401(k) may be partially invested in bonds. Note: If you’re getting a corporate bond, you’ll still have to pay taxes on the interest payments you receive. If it’s a government bond, the interest is tax-exempt. Look at you go.
Try this if…you want to add some diversity to your portfolio. Bonds are generally a steady bet, and their return doesn’t fluctuate with the market like stocks do. But their return also isn’t known for being super high. If you’re young (or like to live dangerously) it’s best to put more of your cash money into…
Stocks: When you own a small piece of a public company. It’s a way to take, yup, stock in the co. and gives you the opportunity to reap its benefits. Owning stock means you benefit when the company’s earnings are up. But you also lose out when the company’s in the red. If you have a 401(k), you’re probably already invested in stocks. Aka you don’t need to buy individual stocks to get in on this kind of investing.