On any given day, keeping track of one’s personal finances might feel anywhere from “tricky” to “impossible.” Although concepts like investing, saving, budgeting and managing your expenses can feel a complex riddle — wrapped in jargon like “compound interest” — the reality is that the fundamentals of good personal finance are surprisingly simple. In this Q&A we talk with Andrew Schrage and David Bakke of Money Crashers to get the low down from two people who know what they’re talking about.
When did you start thinking critically about personal finance?
Andrew: I started thinking about my personal finances when I was around 8 years old. My father began teaching me how to read the stock section of the newspaper and gave me specific companies to follow closely.
What are some of the biggest “money myths” that people buy into but shouldn’t?
David: One of the biggest money myths is that saving money early on isn’t important. It is. With the power of compound interest, you can secure your nest egg by starting as early as possible. For those who don’t know, compound interest is when your original investment not only earns interest, but it is also earned on the interest generated itself, which really ramps up your overall return, particularly if you start early on in life.
How do you think about credit card spending? Do you have a philosophy re: how to use them and when?
D: Credit card debt should never be an issue. With correct budgeting and planning you should be able to pay your monthly bills and save for the future without any problem. Simply put: do not use a credit card without having a budget. Credit cards are super useful tools that can confer great benefits, but they must be used wisely.
How does your income compare to your expenses? How do you decide what that ratio looks like?
A: Income now compares relatively well with expenses. As a small business owner, I’ve been able to achieve a good level of success, but there are always peaks and valleys that I need to plan for.
Starting a new small business is always a challenge. You may or may not experience success at all, and hardly ever early on. It takes patience, planning, and fortitude. One thing I did which helped out tremendously was that I launched our small business while still working a traditional career. That essentially took the financial stress out of the equation in the beginning. Through a lot of hard work, I’ve been able to build a successful career as an entrepreneur, and I generate enough income to pay my bills and save for the future.
Do you have a budget set for yourself? Has your thinking about your personal budget changed over time?
A: There is a budget in place. Expenses are reduced as much as possible and spending is curbed when necessary. Thoughts on budgeting have changed over time, but not too much to get away from original goals. The basics are to generate as much revenue as possible while keeping expenses in check, in order to free up cash for long-term personal financial goals.
My budgeting goal is to keep expenses as low as possible and my savings goal — mainly — is to have enough money set aside for a comfortable retirement. I think those should be, generally speaking, the two goals of any small business owner.
What are your saving strategies?
A: Researching the Internet for ways to save on all monthly bills is one strategy. Reducing entertainment expenses is another — there should be plenty of time to have more fun later on in life when it’s a sure bet that it can be afforded. Another strategy is to make savings contributions at the beginning of the month so I know how much is left over for everything else.
Do you do much investing? What would you recommend to a millennial who wants to dip their foot in? (Also, what do you think of the robo-adviser trend?)
A: A Roth IRA or a traditional IRA would be a good route to go, or if there’s a 401k plan, go with that too. I’ve personally had a Roth IRA as soon as I had the chance to open one. These are the best strategies to take for millennials. Robo-advisors can help with younger folks who don’t know a lot about investing.
What is your biggest guilty pleasure expense?
A: I do spend some money on expenses for playing the sport of ice hockey. It’s always been a passion of mine but I feel it’s a worthwhile splurge since it provides a great form of exercise and retreat.
How do you keep your expenses, costs and investments organized? Do you use a system like Mint? Excel?
A: I use an online website dedicated to effective small business budgeting provided by GoDaddy, as well as Mint and Excel. It’s worked quite well for me for a variety of reasons. These websites and tools are simple and easy to use, and help keep both my business and personal finances organized and accurate. It’s helpful to keep track of this stuff for someone working in any industry, but especially small business owners, where your income usually varies a bit. Plus, if you don’t know where your business stands financially, you’ll have a hard time knowing your level of success and if you can afford to grow.
What percentage of your income do you spend on rent? Is there a recommended rule of thumb?
A: The general rule of thumb is that 30% of your income should go towards housing, and I always try to fall within that general range.
What are some good and bad spending habits off the top of your head? What do you get asked most about?
D: One good spending habit is shopping online, where you can usually find a better deal. One bad spending habit is buying things that you want rather than you need. There is a difference.
Okay. Random unrelated question: Is Blockchain for real? If I have $1000 in expendable income should I buy some cryptocurrency?
D: Blockchain is for real, but you should be very careful before investing in any sort of cryptocurrency. There’s lots of volatility and security concerns.
David Bakke is a personal finance expert specializing in money management, investing, retirement, income generation and entrepreneurship.
Andrew is editor of Money Crashers — a site dedicated to providing practical education, tips, and strategies people can implement in their own daily lives as a way to improve their lifestyles and decrease stress.
Money IQ is a publication that aims to provide simple, no-nonsense personal finance advice. We’re here to dispel myths and demystify personal finance for our readers.
*This article represents the thoughts of the author. You should always obtain your own independent financial, accounting, legal, and business advice.
