we're always thinking of ways to help you find money you didn't know you had, using it today or helping you save it for the future. From helping you set up and maintain a digital wallet that streamlines your digital asset management, to aggregating your rewards points from everyday spending at your favorite retailers,
we thought we’d supply you with some handy personal finance tips. There’s no better time to address your financial future than the present, and while it's tempting to procrastinate (especially now that nicer weather has arrived), you'll thank yourself down the road. And there are so many easy-to-implement personal finance hacks, like setting deposits on autopilot that allow you to save — and earn interest — even while you're not thinking about it.
Before we get into the details, let’s go over some personal finance basics.
What is personal finance?
Personal finance is a blanket term that covers your money management, including saving and investing, plus the nitty-gritty of insurance, mortgages, tax and estate planning, and the financial services that encompass them.
At its core, personal finance is about meeting YOUR goals, whether that’s short or long-term investing, based on where you are at in your life.
Why is personal finance important?
Personal finance is crucial because it's all about responsibly planning how to enjoy your life while comfortably within the constraints of your income. Paying for the essentials is a given, though you also want to have money for your needs, wants, and both short and long-term goals. Whether that's saving up for college, a vacation, or an old-school arcade game for your basement — it’s your money, and you should spend it how you like (within reason, of course).
How to manage personal finances
There are a number of best practices for managing your finances, depending on how active a role you want to play. You can consult a financial advisor who plans and manages a portfolio based on your lifestyle and tentative timeline (but will take a fee), or you can do it yourself. The latter solution requires a baseline knowledge of financial literacy and best practices while staying on top of your budget and savings.
Personal finance topics and tips to consider
1. Implement the 50/30/20 method
A common personal finance best practice is to employ the 50/30/20 method. The idea is that you’re paying yourself first (through savings), so that you have money in the bank and, more importantly, peace of mind before budgeting your extras for the month.
The gist of it includes reserving 50% of your monthly income for essentials (like housing, food, commuting and utilities), 30% for lifestyle, entertainment, and all the fun stuff, and putting 20% towards savings and debt repayment. You can automate this last step easily by setting up a direct deposit, with 20% of your take-home pay going directly into your savings (preferably in an account with a higher interest rate), 401(k), or paying off debt. This method is low-maintenance and helps you plan ahead for longer-term savings before considering your “fun” budget for the month. Of note: you shouldn’t be spending more than 28% of your monthly income on your rent or mortgage (unless you’re living in a city with higher rents like NYC, SF, or Seattle — then that rule goes out the window).
2. Create a financial calendar
Nervous about missing quarterly taxes or just want reminders of when to check in on your credit score, savings, or investments? Make recurring calendar events so that your status checks on financial goals are one less thing to remember.
3. Set up an emergency fund
This can be part of the 20% that you set aside for savings. Ideally, you should have 3-6 months of living expenses set aside in cash in case of an emergency. It should be readily available in a savings account that you normally don't touch, and should accrue interest (let your money work for you!). It may seem like a lot of cash to have on hand, but it's worth it for the peace of mind alone.
4. Pay off your debt
If you’re juggling student loan or credit card debt (or both), then try to negotiate better interest rates on the debt you have. Look at it this way — a credit card company would rather have you pay a lower interest rate than go to a competitor or default on the debt.
There are two widely accepted ways to pay off debt:
- Pay off the debt with the highest interest rate first (usually credit cards) while making minimum payments on other debt.
- The snowball method — pay off your smallest debts first, while making minimum payments on your other debt. Once each debt is paid off, you can use that money towards paying off more significant amounts of other debt.
5. Don’t dip into retirement accounts
While easier said than done, that money should be saved your future self for a number of reasons. Firstly, you’re undoing so much of the hard work you’ve already set in motion — that money is meant to make interest over time, and you’ll be losing out on a lot more than you bargained for. Secondly, you’re bound to be penalized for an early withdrawal. And last but certainly not least — you’re going to get a tax bill for the money you withdraw. Set it aside and let it do its thing until you retire, unless absolutely necessary.
6. Contribute to your 401(k) as much as possible
If your employer has a contribution match and you’re not utilizing it, that’s like throwing free money away! Contribute at least up to the employee match, and count that in the 20% of your income that you’re allocating towards savings.
7. Make sure you have Renters Insurance
While this may seem like an arbitrary addition to the list, if you’re renting, this is a must. Renters insurance covers natural disasters, robberies, and the medical bills of people who get injured at your home. It can also help cover rent at another space if something happens to your home and you’re displaced for a period of time. In short, consider this an essential purchase.
8. Don’t have too much in savings
What a problem to have, right? If you have more cash on hand than what’s in your emergency fund (the aforementioned 3-6 months of living expenses) then you should look into investing your money for passive income so it’s not knocked down a notch by inflation.
9. Pay attention to where your money is going
Rather than continue to spend cash on discretionary purchases, you can see how much your rewards, points, and miles add up to with the Bakkt App, and then use them for purchases instead. You can save on your monthly budget by utilizing your hard-earned rewards points, then putting that extra cash towards savings or investing.
10. Look at taking control of your finances as self-care
Look at financial literacy as a form of self-care. You certainly know how you earn your money, and it’s worth the time to know where it’s going. You deserve to live a life you’re comfortable with, along with a financial cushion for emergencies and some “fun money” each month.
