I made some very quick and very expensive mistakes when I was first starting out. I racked up credit card debt equal to about a half-year’s salary in a very short period of time. I had some extra savings from those extra jobs, but I kept it in the bank, where it was earning a decent rate of interest, but I was paying about three times that on my credit cards.
And I didn’t pay attention when my company put me into a retirement plan called a 401(k). I hadn’t even figured out exactly what it was when I left that job two years later. I cashed out. I made that classic mistake. I got a check in the mail for about $1,500, paid some taxes, and quite frankly, I was thrilled. I went shopping. But I wasn’t so thrilled when, years later, I figured out that it could have grown to six figures if I had kept that money invested in a tax-advantaged retirement account.
Live and learn
I was actually one of the lucky ones. I went on to work on Wall Street for a couple of years, and then into a series of jobs at personal finance magazines where I started writing and reporting about the things that you actually are supposed to do with your money.
I learned how to pick a credit card and how to pay one off, which, for the record, you do from the highest interest rate down by throwing all your extra money at that highest interest rate debt and then focusing on the others. I learned things like which insurance policies you need and which ones you don’t. I wrote about complicated financial situations—starting a business, adopting a child, getting divorced. And I learned how different women truly are when it comes to our money. We live longer and we earn less. So we need to invest that money so that it can grow to take care of us in those later years of our life.
Four key money rules
For me, having a series of money rules has helped tremendously. The way to put a plan in place—that truly works for you—is to set up a series of behaviors and habits that you can follow just like you brush your teeth and go to the gym on a regular basis.
I’ve got about 100 money rules at this point, and I’ve often wished I had them earlier in my career. I think they would have helped me tremendously, and so I’ve picked just a couple for those who are starting out.
Money rule: Live below your means, period.
The secret to successful budgeting is save first. Save first, and do it automatically. Whether you are trying to save in a retirement account or whether you’re trying to save in a plain-vanilla savings account to build your emergency fund, the trick is to just get the money out of either your paycheck or your spending account, before you have the opportunity to spend it. You should aim to save 15% on a consistent basis. And once you’re doing that, whatever’s left in that checking account is yours to do with as you want.
Money rule: Good debt is usually cheaper.
This is an important thing to keep in mind for anybody struggling under the weight of student loans. Student loans fall under the category of good debt, and we like to talk about good debt as debt that actually gets you somewhere. It’s debt that takes out the mortgage that puts the roof over your head, or debt that takes out the car loan that gets you back and forth to work. The way to handle student loans is to either refinance them to bring your interest rate down as low as you possibly can, or get yourself into a payment plan that you can afford—potentially one that’s tied to your income—and then just pay those loans off on their schedule. Don’t rush to pay them off by sacrificing the rest of your financial life—the contributions that you should be making early on to retirement plans.
Money rule: If you don’t ask, the answer will always be no.
Frustratingly, women still earn less than men do—sometimes for doing the very same jobs. We may hesitate to ask for more money for us. So whether it is your first salary negotiation or your 27th, do your homework, figure out what that job is worth, and go in there and ask for it. Then once you’ve gotten comfortable asking, you’ll be more comfortable talking about money in all aspects of your financial life.
Money rule: Aim for progress, not perfection.
No matter what your financial goal happens to be, life happens. There are bumps in the road. There are bumps in the stock market. The key is to try to keep your focus on the long term. Put yourself on a path where every year you know that you’re earning a little more, you’re saving a little more, and you’re investing a little more—that is how you get where you want to go.
- Special report: Women and money.
Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.
Views expressed are as of the date indicated and may change based on market and other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author, as applicable, and not necessarily those of Fidelity Investments.
Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.
Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917