*One of Real Simple's Most Inspiring Books for Graduates*
*Indie Personal Finance Bestseller*
How to get good with money, even if you have no idea where to start.
The Financial Diet is the personal finance book for people who don’t care about personal finance. Whether you’re in need of an overspending detox, buried under student debt, or just trying to figure out how to live on an entry-level salary, The Financial Diet gives you tools to make a budget, understand investments, and deal with your credit. Chelsea Fagan has tapped a range of experts to help you make the best choices for you, but she also knows that being smarter with money isn’t just about what you put in the bank. It’s about everythingfrom the clothes you put in your closet, to your financial relationship habits, to the food you put in your kitchen (instead of ordering in again). So The Financial Diet gives you the tools to negotiate a raise and the perfect cocktail recipe to celebrate your new salary.
The Financial Diet will teach you:
• how to get good with money in a year.
• the ingredients everyone needs to have a budget-friendly kitchen.
• how to talk about awkward money stuff with your friends.
• the best way to make (and stick to!) a budget.
• how to take care of your house like a grown-up.
• what the hell it means to invest (and how you can do it).
|Publisher:||Holt, Henry & Company, Inc.|
|Product dimensions:||6.10(w) x 8.40(h) x 0.60(d)|
About the Author
Lauren Ver Hage is an art director and the cofounder of The Financial Diet living and working in New York City. She graduated from Ramapo College of New Jersey with a major in visual communication design, and from there worked as an art director at an advertising agency and a freelance designer for Nickelodeon, before moving on to cofound The Financial Diet.
Read an Excerpt
How to Make the Most of What You Have
Money without a budget is like champagne without a glass.
I've always been allergic to the word "budget." I spent so long in relative financial chaos, just getting to the point where I wasn't spending in a cycle of anxiety and impulse felt like a victory. To put something as stuffy and restricting as a "budget" on my month-to-month financial life felt like a punishment. I just felt good about the small progress I'd made, so I decided that it was good enough to just always have "something" in my checking account.
That "something" varied wildly, of course, and it never amounted to an actual emergency fund, nor did it ever migrate into an actual savings account — because I didn't have one. I just thought that having over $1,000 in my checking account at all times meant I didn't really need a budget. Besides, taking on freelance projects occasionally resulted in large-ish influxes of money outside my regular salary, so I thought that the "real" savings would happen in large, unexpected chunks. I thought that it was good enough to be "good enough" and that not having a defaulted credit card or creditors harassing me was license to never think about something as boring and tedious as a budget.
I didn't want to give in to the idea that there were certain rules I needed to live by — or worse, that I had to impose them on myself. The worst thing about being an adult is the fact that we can do basically whatever we want. You can have Chicken McNuggets and champagne for dinner, but you know that the next day you'll feel like a whoopee cushion made of alcohol and sodium. Yeah, adulthood. The self-imposed restriction on my lifestyle that a budget implied was what made me feel like a failure (also, it was boring). And while letting go of that last little bit of my Peter Pan lifestyle was not easy, it was totally necessary.
Hence, a budget. And because the idea of having to manually enter numbers into a spreadsheet felt very much like the remedial math class I took (and failed!) during summer school in the eleventh grade, my budget started with an app. I downloaded a program called Mint, which basically took all my spending habits and disparate accounts and gathered them into one convenient place, where I could learn about my tendency to blow thousands of dollars a month on eating out, or spend $170 in a shopping frenzy at an outlet store with no recollection of what I had bought. It was a slap in the face to see my impulse spending and bad habits clearly, but great insight as well, as my first budget told me that I would be able to comfortably retire — provided I died within a week.
Whether you have a stable monthly paycheck or work in an industry where your pay is more irregular, there is a series of "Don't You Fucking Dare"s that will help ease you into budgeting and keep you on track before you have to get into the nitty-gritty of a detailed personal budget. When I moved from my regular nine-to-five to running TFD full-time, it meant dry months and unpredictable income. I couldn't have a normal "budget" per se, so I found these rules indispensable in ensuring that those first wobbly years of starting my own business wouldn't result in reverting to my worst habits.
When you start out as a bit of a hot mess (which we all are, at some point), you need to take baby steps to become really good with money. No shame in that. And besides, the truth of making a really good budget — even if you are starting from a point of general fiscal responsibility — is that you have to be hard on yourself. This means being honest about where your weaknesses are, where you could be saving more money but aren't, how you could be earning more, and what you have a tendency to lie to yourself about. Even if it's just the fact that you buy a cup of coffee on your way to work every day (the personal finance blogging world's Ultimate Sin), there's a vice you could cut back on in a relatively painless way. You just have to take a pair of glasses and tweezers (metaphorically, of course) to your account statements and resolve to be ruthlessly honest. It was only through that exercise that I was able to create my mini-list of DYFDs and from there to build an actual budget.
But once you have your DYFDs mastered, and understand the underlying principles behind budgeting, it's time to draft up a basic budget for making the most with what you have. Not everyone is going to have the same goals or options, but everyone can use a program to track their spending, set reasonable goals, and hold themselves accountable. I personally prefer to use an app to manage my budget because Excel spreadsheets make me break out in hives (I use Mint, but You Need A Budget is another great one). But doing your budget manually is a great activity all of us should force ourselves to undertake at least once. Typing in those numbers by hand does wonders for making you realize what you're spending on (much like doing an all-cash diet for a month). Lucky for us, Lauren is a hard-core Excel budgeter and has shared her universal template for budgeting here.
This simple formula isn't perfect — no one budget strategy will work for everyone — but it gives you a good place to start, and, more important, it forces you to confront your habits and weak spots by entering them manually. We recommend that you make this budget manually for at least three months' worth of expenses. Once you have them all laid out, go through and see where you are spending and what your key percentages are: How much are you spending on rent? Food? Shopping? Could you be paying down more debt to save on interest? Most important, how much are you saving each month?
A popular system for breaking down any healthy budget is the 50/30/20 system: with 50 percent of your income going to fixed costs like rent, phone, and utilities; 30 percent of your incoming going to variable/lifestyle-based costs, like groceries, going out, and travel; and 20 percent going to savings, both long- and short-term. The other categories may vary a bit, but 20 percent of your income toward savings is a goal almost everyone should have.
If you look at your last few months' worth of budget and see that your rent is eating up half your income or that you are barely saving, it's time to reassess your lifestyle and do some serious cutting. We recommend updating your budget in this way at least once a year.
The truth is, many of us have a hard time giving savings the full, vigorous commitment it needs — often because we are overwhelmed with things like student loans. Saving a fifth of what you make may not be realistic, but taking on some side jobs is almost always preferable to saving little to nothing. Everyone needs to structure their budgets with basic savings and security as the top priority, even before debt repayment. An emergency fund is nonnegotiable, even if you have a million dollars of debt (living without an emergency fund is like driving without a seat belt).
And no matter how you decide to allocate your savings, debt repayment, and investment, the point is that you always do it with Future You in mind: make sure that you are getting the absolute maximum benefit from each dollar in your budget (once you are finished saving up your emergency fund, of course). A good, long-term-oriented budget is the bedrock of your flexibility throughout life. Trust me, I have been on both sides, and it's much better with one than without.
At TFD, we also believe that budgets can and should be beautiful. You should have a method to track a month of spending that actually makes you want to do it and gives you something nice to look at in the process. In the same way that a lovely notebook makes you want to take notes during a meeting, imbuing your budget with some aesthetics will take some of the sting out of doing it. We believe firmly that a good budget should be hung on a wall or over a desk, along with things like day planners and calendars and todo lists. Money isn't something to be kept in private hiding places; it should be something you look at every day to remind you of what you actually want and the progress you've made so far.
When we started pursuing TFD full-time, it became clear early on that — especially when it comes to things like daily budgeting — every money expert has a different philosophy. There are some people who are radical debt-payers, others who focus heavily on investment, some who espouse super-minimalist lifestyles, some who vaunt the side hustle way more than paring down how you live. And it's difficult to say, when faced with the ever-expanding marketplace of financial ideas, which is the right path for you. It depends on a lot of different factors (everything from how much debt you have to how much you like to eat at restaurants), but we should all be able to be honest with ourselves about what we can stick to and accept that no one solution is going to work for everyone. We think that the only way to stay sane financially — unless you're planning on going on a really hard-core money lifestyle change (and there are a lot of personal finance plans that are, like, the CrossFit of money) — is to create your own collage of strategies that work for you.
Three of the money experts we follow have become friends and collaborators with TFD and have taught us a great deal about both personal finance and how to make money a more balanced part of your life. We spoke to all three about how they personally budget, how they approach finance, and the strategies that have helped them find the financial harmony they enjoy today.
When it comes to building your own perfect budget, as you can see, everyone is going to have a different strategy. It depends on what you need, what you want, and what you have. But there are good questions you can ask yourself to help decide what is the right path and structure for your money. Here is our cheat-sheet questionnaire, which will help you analyze your spending and savings.
This isn't your foundational budget document, but it is designed to give you a financial snapshot and to inspire you to stay focused on your fiscal goals.
If you want to get good with money, the absolute first thing you need is a good budget. Period. Though we can't promise you that it will be the most fun thing you'll ever do (it won't), we can promise that it will have the biggest return on investment (a little money humor for everyone!). For the price of zero dollars and a few hours, you'll be asking yourself the questions and putting together the framework that will let you take control of your day-to-day life for the rest of your life. Nothing feels more badass than having that control, and knowing where your money is coming from and going to each month. And nothing feels more adult than being able to plan for a real future that looks like what you want it to look like.
How to Be Your Money's Asshole Boss
Waiting until you're rich to start caring about your money is like waiting until you're married to start dating.
When I was growing up, my family always had a very large round wooden dining table. They had this table not because it was the most convenient way for four people to eat dinner — it definitely wasn't — but because it was the best table to host their famous poker parties. As a little kid, poker parties meant that I got to stay up as late as I wanted watching movies in my parents' bedroom, snacking on all the delicious finger foods my mom made for the guests. (I'd also usually wrangle a few bags of candy out of the deal, if I promised to keep my little sister from leaving the bedroom.) And as I got older, I was allowed to spend increasingly long stretches of time at the table with the grown-ups, learning the game and making them laugh, so as not to wear out my welcome. By the time I was twenty-one, and coming home for holidays, I could sit at the table for an entire evening, sipping a vodka soda and playing poker with men more than twice my age. There was something incredibly special to me about being able to play a real game, to bet my $15 or so and spend the night listening to stories, and telling a few of my own occasionally. In many ways, I measured my adulthood against my role in those poker games — and betting (and potentially winning) money was a big part of what made it feel thrilling. For the longest time, I looked at the idea of investment the way I looked at poker: it was largely the domain of older men who knew what they were doing in a way I did not, and it almost always ended in me losing the money.
It really wasn't until I started TFD, and began to learn the basics of investing, that I started to believe having a "diversified portfolio" was something I could achieve. For example, that 401(k) letter from HR at my old job I'd promptly thrown in the trash? That actually meant something. If I'd taken advantage of it, I'd have several thousand extra dollars right now, which would be accruing more money while it sat in that account. But I didn't know what the term "401(k)" even meant, and I was too lazy to ask. I couldn't understand why I'd spend an hour setting up an account so my money could sit somewhere instead of it being liquidated at a happy hour. It didn't make sense to me that "investment" could mean something slow and steady like that — or that it could be as simple as an hour with my HR person.
Of course, investment is nothing like poker, unless you do it like an enormous idiot. Point-blank, investing is neither scary nor difficult. You have to know a few basic rules, and get fluent in a few strategies, but it's something everyone can master — even with just a few extra dollars a month. And we would never encourage you to become like those middle-aged dudes who suddenly become borderline hermits and spend eighty hours a week "day trading" in their underwear. But, one of the most important parts of understanding investment is to start young: it's easy to feel like the "making your money work" bullshit only applies to old people with a lot of money, but let me tell you, it very much does not. Being young is like having a secret cheat code to increasing your wealth, because your money has a much longer time to grow.
Giving yourself the right vocabulary — check our glossary at the back for tons of useful investment terms — and understanding the basic underlying principles of investing are half the battle. Most of us avoid thinking about our money in terms of investment because it feels confusing or unnecessarily complicated. We can often visualize investment as this extremely active process, something that needs to be your full-time job to truly master. But there are hundreds of ways to go about it, and because many of them are passive, are simple to set up, and require very little amounts of money, an entire world opens up to you. You don't have to be some stock photo of a money manager holding sacks of dollar bills to invest. You can do it in a few hours by setting something up with your HR department. Hell, even paying down your debt is an investment in your financial future.
It's important that you start looking at your money like it's the asshole boss: it shouldn't just sit there in some boring account, doing nothing (except for your emergency fund, which is boring but absolutely necessary). Your money should be actively working, and always doing something that is to your benefit, and always reaching toward a goal on its own. The best part is that doing this doesn't even require a dangerous, risky, and complex strategy that's way too complicated for you to understand. And if I can figure it out, trust me, so can you. But you have to know where to start.
One thing that is essential to understand, when it comes to investment, is that a dollar in your budget is not necessarily just a dollar. Yes, a dollar could be something you choose to spend on a couch or a shirt or coffee, but if and when we have the opportunity — because, yes, sometimes we simply don't have the money to invest — investing makes that one dollar worth potentially much, much more. To not take advantage of, at the very least, a basic retirement account and the interest over time we stand to gain from it is to shoot ourselves in the foot (or bank account).
I won't oversell it and promise you that you are going to be a millionaire by the time you are fifty if you put a penny in some account every day, but we all have the opportunity to accrue wealth if we start investing young. We all have the opportunity to be one of those people with a real nest egg, a real retirement plan, and a real inheritance to pass down. And figuring out the value of an investment is a lot easier than you think. In fact, there is a simple, straightforward rule that allows you to quickly calculate compound interest, which will allow you to visualize the long-term potential of an investment, see how much fees and charges might really amount to over the years, and decide among different options. Master the rule of 72, and you'll quickly become a wizard at analyzing a lot of these tricky numbers.
Excerpted from "The Financial Diet"
Copyright © 2018 Chelsea Fagan and Lauren Ver Hage.
Excerpted by permission of Henry Holt and Company.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
Table of ContentsIntroduction: How to Give a Shit About Money