Wealth-Building Tips: Deciphering Fact vs. Fiction

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May 9 2016, Published 3:30 a.m. ET

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A recent Stash survey revealed 79 percent of millennials don’t invest in the stock market. One major barrier is thinking a lot of money is needed in order to start. 70 percent of millennials they spoke with believe they need at least $100 to start investing in the stock market, while 38 percent think they need at least $1,000.

Meanwhile, 97 percent of millennial women surveyed by PwC said work/life balance was of critical importance to them. The key to achieving the balance and flexibility we all want and deserve is financial freedom which is achieved through multiple and diverse revenue streams.

It’s time to rethink how we approach investing and personal finance. You may have learned some golden rules of personal finance over the years, whether from your parents, your college finance teacher, or elsewhere: build a budget, pay off your debt, put 10 percent of your income toward retirement, save three months’ salary for an emergency. The list goes on.

Then reality sets in. You finish school, land your first job and your own apartment, and pretty soon you start to wonder, which of these rules do I really have to follow?

The answer will depend on your individual situation, but Kristin Wong has some tips to help. She’s a personal finance blogger and journalist who, at 32, has managed to pay off her debt and become financially secure (while indulging in her love of travel).

Tip 1: Reduce and Manage Your Debt

Reducing debt is important, but managing debt as you reduce it is even more critical. If you plan to purchase a home, create a budget before you get serious about a particular house:

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  • First determine your monthly net income: the amount you take home every month after taxes.
  • Next subtract your non-housing expenses, including a car note, student loan payments, insurance premiums, credit card payments, and how much you’ll spend on groceries and eating out.
  • Once you’ve totaled all of these expenses and subtracted them from your monthly net income, think about how much you’d like to put into savings each month.
  • Finally determine how much of the remaining balance you are comfortable spending on a monthly mortgage payment, along with the associated costs of owning a house: homeowner’s insurance, property taxes, homeowners association fees (if applicable), monthly utilities bills, and other household maintenance.
  • Use this number, and the amount you plan to use as a down payment, to figure out realistic house price options.

Before you meet with a real estate agent and look at houses, work with a lender to get prequalified for a mortgage and discuss what you want your monthly payment to be. Make sure you can afford your loan payments so you can pay off your house and other debts sooner rather than later.

The Exception: Getting out of debt shouldn’t come at the expense of establishing an emergency fund, Wong says. It’s also important to leave room to have fun every once in a while.

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Tip 2: Build a Budget Based on the 50-20-30 Concept

This budget-planning principle allows you to think about your expenses in three main categories:

  • 50 percent of your take-home pay should go toward fixed costs for essentials like housing, food, transportation, and utilities  – costs that can vary from month to month but are constantly in demand.
  • 20 percent (or more!) should go toward your financial goals, like savings, retirement, and an emergency fund.
  • 30 percent (or more!) should be for discretionary spending, like dining out, vacations, or a new outfit.

The Exception: Customize this rule for your situation. For instance, the commonly held belief that housing should be 30 percent or less of your income may not be realistic if you live in a place where that’s not possible, Wong says. For example, if you live in an area with high home prices and rental rates, you may need to spend more on housing and less on your discretionary spending.

Likewise, putting the recommended 10 percent of your income toward retirement might not be possible when you’re just starting out — though Wong emphasizes that you should always at least consider taking advantage of employer matching, because in many cases it is free money that may grow over time.

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Balance these trade-offs when budgeting today, and aim for a future budget that meets the 50-20-30 concept. Take things slow and steady. “It’s a good financial goal to have, but you want to make sure you’re being realistic,” Wong says.

Tip 3: Live Below Your Means

“The main tenet of accumulating wealth is to live below your means,” Wong says. That’s certainly something to aim for, but Wong has other advice for the times when that isn’t possible.

The Exception: “My top golden rule is being resourceful,” Wong says. “Sometimes, your means are so little, you have no choice but to live at or even above them for a time, and for those situations, being resourceful can be useful.”

She also notes that when you are able to live within your means and are planning how to spend your discretionary income — that last 30 percent — it’s best to focus on activities and items you love, not just ones you like. “It’s OK to enjoy your money,” she says. “Make room in your budget for such luxuries, but choose them wisely with your discretionary money.”

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It’s safe to say that you should listen to most of the advice from your parents, teachers, and other respected sources. But sometimes when it comes to the golden rules of finance, you have to look at them from your perspective and choose what makes sense for you.

Use this calculator to help gauge the health of your financial situation. Want to be even more proactive with your finances? Save angst by scheduling financial ‘to-dos’ using this helpful monthly checklist. You can like Regions Bank on Facebook to stay up to date with more advice and financial resources and use the hashtag #womenandwealth to join the conversation.

[Editor’s note: This post is sponsored by our friends at Regions Bank. Thoughts and opinions are ours. This post does not recommend any particular strategy. Her Agenda does not publish content that we do not believe in.]

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