I came of age in the great recession, a time of economic disparity for the entire country, which has made it hard for myself and a lot of people in the millennial cohort to get ahead.
“The 1980s cohort is at greatest risk of becoming a ‘lost generation’ for wealth accumulation. Wealth in 2016 of the median family headed by someone born in the 1980s remained 34 percent below the level we predicted based on the experience of earlier generations at the same age,” according to a report by the Federal Reserve Bank of St. Louis.
So what am I doing about this? Well, I’m making a concerted effort to pay off debt, save, and eliminate expenses. I recently paid off a $7,000 credit card with my tax refund and money from my second job. I also no longer have cable, saving me nearly $75 bucks a month, and I’ve taken a break from traveling until May.
For so many of us, we weren’t taught about finances, so we’re learning the hard way - through trial and error of debt and now debt elimination.
Last year, I worked with a financial coach to get finances in order, and her plan helped me tremendously. I wanted to share her knowledge with you, so I recently interviewed her. Her name is Raya Reaves, she’s a financial coach and founder of City Girl Savings. Raya teaches and empowers women to reach financial success through better budgeting processes, money mindset shifts, debt help, and true spending accountability. Most of all, she teaches you how to still be fabulous while staying on a budget.
Here’s the interview in its entirety.
Q: Are there any reoccurring issues that you see clients have when managing money? What is your advice to them?
A: The biggest reoccurring issue that my clients (or most people trying to budget consistently) have is the lack of self-control. We live in a society that fosters instant gratification. Unfortunately, when you are working towards financial freedom, instant gratification can be a downfall. My advice is to always remind my client what they are working towards. Why is skipping that daily Starbucks latte so important? Because you want to be debt free more than you want that latte (ideally!)
Q: What is the most common financial mistake clients make? Do you have any suggestions on how to avoid this?
A: The most common financial mistake my clients make, at least in the beginning, is forgetting about the importance of budgeting for some fun. I never recommend my clients cut out all discretionary spending – life is too short for that, and it can lead to unnecessary splurges. To avoid skimping out on the fun spending, I work with clients to find a “safe” number that can be spent on fun each month. Everyone is happier this way!
Q: What are some tips for developing and sticking to a budget?
A: Make sure you budget for fun, unexpected expenses and savings – skipping any of these categories can lead to a failed budget
The only way to know if you are sticking to your budget is if you are tracking your spending – track everything spent against your budget.
Use cash for your discretionary spending – it can be too easy to overspend on things you don’t need when you are using a debit card to pay for it.
Q: Living in a city can be financially challenging, do you have any suggestions for dating while on a budget?
A: Sometimes doing anything while on a budget can seem challenging, but it doesn’t have to be. There are plenty of free or low-cost events, resources, and places to take advantage of. It simply requires you to do some research. My tips for dating while on a budget would be to research free events in your city, look for the best happy hours, and see what low-cost things can be done where you are.
Q: The conversation can be awkward when you constantly have to turn requests down when you’re on a budget. Do you have any suggestions for what to say to friends when you can’t do things because you’re trying to save?
A: It can be very awkward to turn down an invitation because you’re on a budget, but it is an absolute necessity. Honesty is always the best policy, and usually your friends will understand and even hold you accountable. Being up front about your budgeting situation and why you have to turn an event down can be scary, but a true friend won’t mind. Since you should be budgeting for a little fun, you can always suggest other event alternatives that will keep you in your budget, but still allow you to do something with your friends.
Q: So many millennials are bucking the corporate world and starting their own businesses, do you have any tips for budgeting when you’re trying to do this? How many months of savings should you have? Should you eliminate expenses? How much income should you have coming in before you leave your full-time job, etc.?
A: One of the best ways to go about starting your own business, especially as a millennial, is to do it when you still have a source of income to live off of. If possible, start your business on the side. Remember, that it is temporary! This will take the financial pressure off of you while you are trying to grow your business. However, it will take a lot of time management, sacrifice, and long nights. If you really want it, you will make it work. Check out How to Manage Having a Day Job and Side Hustle.
If you don’t want to go the route of having your business and day job, I’d recommend making sure your personal finances are in order first. You will want to make sure you don’t have debt, you have an emergency fund of 6-12 months’ worth of expenses, and as minimal living expenses as you can. If you have all of those things in place, your business doesn’t have to bring in income right away. You have given yourself time (at least 6 months) to focus on growing your business, and hopefully income will come within that timeframe. If income doesn’t come after that amount of time, you should evaluate if things are being done the right way in your business.
Q: Budgeting can feel like you’re zapping the fun out of life, how does someone still live an enjoyable life while sticking to a budget? Any tips?
A: The key is budgeting for the things you enjoy! Based on your income, expenses and financial goals, you should determine a safe number to budget for fun each month. If you are planning a vacation or large discretionary purchase, start saving for it as soon as possible. You never want to put your financial goals behind having fun, but you should work towards the balance of doing both at the same time.
Q: If you’re living pay check to paycheck, do you have any suggestions for how to save with limited funds?
A: If you’re living paycheck to paycheck, the best thing you can do is figure out why. Where are your expenses too high? Where are you overspending? Once you can answer those questions, you can start making changes. Once you start making changes to how you spend, you can focus on bringing in more money to help you break that dreaded cycle.
Q: How many months of emergency savings should one have? Is six months still standard?
A: I think everyone’s situation is different. For example, if you have debt, then an emergency fund of $500-$1000 is a great start – then you can focus all of your extra income towards paying off that debt. If you are debt free, then 3-6 months’ worth of expenses is the way to go for an effective emergency fund.
Q: What are five creative ways to save money that clients don’t often think about? (cutting cable, etc.)
Use an app to save without much thought, like Digit.
hopping for produce, buy only for the week ahead. Wasted food is a huge, unnecessary expense.
Refrain from storing your credit card information on apps or websites. Physically entering your information each time may cut down on impulse buys, and it's also safer from a security standpoint.
If you’ve been a long-standing customer with your insurance, cable or cell phone companies, call and ask for a discount. You can also ask your credit card companies for a lower interest rate. Asking never hurts.
Investigate what free perks come along with your credit cards, such as extended warranties or insurance on car rentals.
Q: How should younger generations be adjusting their financial goals when so many of us don’t have a retirement account and 401k plans that don’t match?
A: As hard as it may be, younger generations need to adapt to a “long-term” mindset with their money. It’s so much easier to start saving for retirement, financial goals, or anything, when you start young. The younger you are when you start saving, the less you need to save on a regular basis. Working with a financial coach or advisor can help anyone get on the right track for long-term goals.
Q: What is the best platform for long-term savings?
A: Investing in the stock market is the best way to save long-term – hands down. You can do this through a 401k plan, IRA, or brokerage account. Betterment has great options for long-term investments.
Q: What is the best platform for short-term savings of a house, car, big trip, etc.?
Depending on how quickly you need the money, you can save in a CD for a larger return. You also can’t go wrong with saving for short-term goals in an online savings account. They offer much higher interest rates and don’t require your money to be tied up for long periods of time. Synchrony, Ally, and Discover are a few examples.
Q: If someone is in a lot of debt, where should they focus their financial energy first?
A: The first thing a person with debt should focus on is building an emergency savings of $500-$1000. Once they have that saved and put to the side, creating a realistic budget is next. This will tell the person what they can afford to put towards debt, on top of the minimum payments. Once you know this number, you can follow a debt repayment method, like the snowball method, until your debts are paid off.
Q: Is there such a thing as good debt?
A: In my opinion, there is no such thing as good debt. There is bad debt (credit cards, payday loans, anything with extremely high interest), and not-so-bad debt (student loans, mortgages, anything with low interest), but there is no good debt.
Q: Do you have tips for developing passive income to help get out of debt?
If a person wants to develop passive income to help pay off debt, I would suggest anything that doesn’t require an upfront investment to get started. Otherwise, that money could just go towards your debt anyways. If you have the opportunity to rent a room, start a blog, or create digital products, then take advantage – these are great ways to build passive income.