By Joshua Holt • January 09, 2020•Careers, Law School, Issues, Balancing Private and Professional Life
If you’re like me, you spent the holidays trying to stay warm, avoiding your phone, and curled up under a blanket watching a few lawyer movies, thankful that you’ve somehow avoided getting staffed on one of those must-close-by-December-31st deals.
But now it’s the new year and you’re thinking that you need to “control your money, so it doesn’t control you.” You’ve mastered the basic principles of creating a budget, avoiding credit card debt, and keeping a close eye on your decreasing student loan balance. But what else can you do to master your money and build wealth and security? Here are five secrets of personal finance to help you supercharge your money management goals.
1. You might be missing out on employment benefits
Have you thoroughly explored what financial benefits are available to you through your employer? If you have a 401k, make sure you’re taking advantage of any available matching funds, but also work to increase your contribution each year even if only by $100 a month. The goal is to get to the point where your 401(k) is maxed out “off the top” of your income without you ever thinking about it.
Flexible spending and health savings accounts are another great way to save money through your employer-provided benefits. How much do you spend on childcare or out-of-pocket healthcare expenses? If you contribute to an FSA or HSA, the tax savings is like giving yourself a discount off the top for essential expenses. Health Savings Accounts are great too because the funds roll over from year to year. Even if you never use them health related expenses, you can withdraw from the them in the future like you would from a traditional IRA.
Spend a few minutes going through the “benefits” page at your employer’s intranet. There are always a bunch of other small perks that people miss from phone reimbursement to Employee Assistance Programs, to free gym memberships. Ask your human resources department to walk through the menu of available benefits and take advantage of any that apply to you.
2. You can save money on your student loan repayment
Did you know that many student loan refinancing companies offer a bonus to refinance your loans through them? It’s a quirk of the market that they’re willing to literally pay you a bonus to refinance with them. The bonuses range all the way up to $750 as I’ve documented at Biglaw Investor.
You should also evaluate the available rates and terms to ensure that your repayment schedule fits your budget and your long-term financial goals but assuming you’re not pursuing some type of forgiveness, student loan refinancing is way to save thousands of dollars over the cost of your loans.
3. You might be overpaying for insurance
It can be confusing to navigate which insurance policies to buy and how much coverage you need. Many people overpay for independent life and disability insurance when it might already be offered at a low premium (or even for free) through their employer.
While it’s certainly important that you have enough insurance to take care of your dependents in the event of a debilitating accident or your untimely death, make sure you’re buying the right coverage to suit your unique needs and the size of your family.
For life insurance, all you need is a term life insurance policy. Term policies are the “simple” kind where you’re either alive or dead and the policy pays based on that condition. Whole life insurance policies (and their cousins with similar names) are a mix of life insurance and investing. Do yourself a favor and keep your investing separate. Most whole life insurance policies are made to be sold to you by salespeople and will leave you poorer in the long run.
4. You need to re-evaluate your expenses periodically
It’s easy to accumulate expenses and in the modern world, it’s the small recurring charges on your credit card or checking account add up to lots of money over time. At least twice a year, take a look at what you spend each month. What services are you subscribed to that you don’t really need? I’m confident there’s a couple right now you could cut and re-evaluate whether you miss them in a few months.
How much are you paying for your monthly cell phone? I hope it’s $40 or less. Today even the “national” carriers have captive companies that offer similar service to their parent companies for a fraction of the cost. If you’re interested, check out Visible, which is owned by Verizon or Cricket is owned by AT&T. I’ve been using Wing for the past few months and I’ve been happy.
5. You might not be budgeting effectively
Even if you have been budgeting for years, it’s always a good idea to take a step back to see if your budgeting strategy is still working for you. The most important aspect of a budget is the ability to “roll with the punches.” Nobody hits their budget numbers each and every month, so if your budget falls apart as soon as you accidentally spend more on restaurants than you intended, you need to find a better system. You should be able to make mistakes but still keep moving.
One effective strategy I’ve seen used by many lawyers is to “set your salary” by setting up payroll to deposit a fixed amount into your checking account and the rest into a separate account. The key here is that you shouldn’t be able to transfer money between the accounts (make it so you have to write a check or some other unpleasant task that takes several days to move the funds). You will eventually figure out what your “salary” should be and over time, as your income increases, you’ll have a natural budget that limits your expending and prevents lifestyle inflation.
Personal finance success doesn’t have to be a mystery. These tips will help you not only stretch your dollars, but also grow your savings into a secure nest egg for a comfortable future.