Crisis Averted: Simplification of Finances
Simplifying your finances sounds like it should be easy, doesn’t it? Money comes in. Money goes out. What’s so hard about that?
Yet, if you struggle to balance your budget, or if you feel as though you work hard all the time and somehow never have enough money, know that you are not alone.
As an attending physician, your challenge is even greater than that for people in non-medical fields. Not that other professions are not demanding (firefighting, anyone?), but we know that the path to becoming a doctor serves a singular purpose. It’s as if you put blinders on somewhere around high school if not earlier, and you don’t take them off until you have that medical degree in your hand.
In recent months and even years, a national conversation has grown around the nation’s student debt crisis. And rest assured, there really is a crisis. Hopefully not for you as an individual, because you’re here and reading this article so you know that help is available. We can help you devise a plan to help you dig yourself out of that student loan debt.
But, with every student who graduates from school with five or six figures’ worth of debt but without a plan to pay it back, or without an understanding of how compound interest works, our economy gets just a little bit weaker.
It’s so easy to borrow money for school, and most advanced degrees are not financially feasible without taking on loans. Invest in your future, they say. You’ll always have a good job and be well employed if you become a doctor, they say.
And this is partly true. As a physician, you will likely be able to stay well employed throughout your career. But when you start your professional life with heavy debt looming over your shoulders, it’s as if you’ve found yourself running a race you didn’t even know you entered, and aren’t sure how to catch up.
This article is written with the life of an attending physician in mind. You are likely just starting out with your first non-training professional job. Hopefully, you have your first non-training salary that actually has a reasonable number of zeros in it.
So, what’s next for you in the land of personal finance?
You probably have at least one savings account somewhere. Maybe you have a checking account, too. You put money into it; you take money out of it. You accrue a bit of interest, but not much. It’s time to take that humble yet important beginning and learn the basics about those accounts so you can maximize what you have. In doing so, we hope you will feel more comfortable learning about how to get more of what you want out of your money long term.
15 ways to simplify your finances
Keeping money simple is the best place to start. When you are comfortable with establishing some good habits and have a baseline for how to manage your money, then it will be time to look into more complicated types of investments, or hire a financial planner to do that for you.
These tips are not meant to help you become the next Suze Orman, Dave Ramsey, or Warren Buffet. They are meant to help you be the best you with every dollar you earn.
Saving money does not need to be complicated. We make it more complicated than is necessary because we hear about stockbrokers and investments and mutual funds and annuities and other things no one teaches about in school. Even compound interest is a concept not taught in schools, but compound interest can change your life.
So, read on to learn 15 ways to simplify your finances and get more of what you want out of life and your financial future.
1. Open a bank account
If you don’t already have a bank account, you need one. Banks are the easiest, safest place to keep your money both long and short term. The catch with a standard bank account is that interest rates are typically very low. In other words, a bank is great for money storage, but not great for multiplying money to make more money.
What many people don’t realize is that banks pay interest as a fee in exchange for you allowing them to use your money. When a bank offers a loan to a customer, the money for the loan comes from the money customers are already loaning to the bank. That’s right – when you put money in a bank account, you are technically loaning that money to the bank for their use. They can’t lose it, though, so don’t worry. Your money is federally insured.
2. Know the difference between types of bank accounts
The most traditional forms of bank accounts are a savings account and a checking account. The savings account pays a little bit more interest than the checking account because you will likely leave your money there longer. The checking account does pay interest, but not much, because this is the account from which you will typically move money in and out the most.
Most people pay their bills and other expenses out of their checking accounts. This is a safe place to keep the money that you need to be able to access quickly.
It is also possible to have a money market account, which typically pays a little more interest and is simply another savings account. The reason the interest rate tends to be higher than a regular savings account is that there is a minimum amount of money, say, $2000, that you must keep in the account at any given time.
3. Bank account interest rates can change
If you are wondering why we haven’t been talking about specific interest rates, that’s because banks can change their interest rates at any time. They will not notify you of this, at least not directly. You can access your account at any time to see the current rate. But interest rates are variable, and are based largely on the Federal Reserve, which is to say, the U.S. economy.
4. Remember that bank account interest is low, but the accounts are stable
It’s a trade-off. Do not stress about this. Remember, bank accounts are the safe places where you keep money that you want easy access to, kind of like keeping money under your mattress, only better because if the bank burns down, there’s an insurance policy that will recover your money for you.
5. There is usually a trade-off with finances
This is a simple yet important principle. There are no easy, guaranteed ways to make a lot of money really fast. Any time you invest money, there is a risk. Eventually, when you’re really comfortable with saving and investing, it will be time to learn more about the types of investments that are available and some good places to start. But to jump into investing without first learning to know and love this principle, that essentially teaches you that there are no easy fixes, is a quick way to lose your money fast.
6. How to open a bank account
This one is easy. First, pick a bank, any bank. Then, you can walk in the front door, wait in line to speak with a teller (or, “relationship manager” as they are sometimes known), and say this: “Hi. I would like to open an account, please.” They will be happy to help you. Every bank requires a different amount of money as a minimum to keep the account open, but that amount can be as low as five or ten dollars at some banks. You can also open a bank account online. Do not worry; your money will be just as safe. Most of the time, you never really put your hands on cold, hard cash anyway. So much of our money is moved around electronically, through what is commonly referred to as a wire transfer. The same thing applies with online banking. Some banks have incentive cash back bonuses if you sign up with them and deposit a minimum amount.
7. How to choose a bank
There are a lot of banks. The process of choosing one is much simpler than you might think. This is because they all pay about the same amount of interest at any given time, and bank accounts are easy to open and close. You can change your mind and pick a different bank in which to store your money any time you choose. That’s one of the benefits of keeping some money in a bank. It won’t grow a whole lot, but you can move it around as often you like.
8. What’s the difference between a bank and a credit union?
For the customer, not much is different. Banks and credit unions look the same. You walk in the door and see tellers and bank windows and deposit money and make withdrawals. The biggest difference is that a bank is corporate and privately owned, and a credit union belongs to a community. That can mean lower ATM fees and better interest rates for you if you qualify for membership.
9. Don’t keep your money in cash
Why not keep everything under your bed in actual dollar bills, you mean? We once knew a freelancer who would get paid in cash. Her boss would literally hand her an envelope filled with cash. For a long time, she would keep the money in her apartment. One day, she realized that while she was away from home, anything could happen to the cash. She could be robbed. The building could burn down. The pipes could burst and the apartment could flood. There would be no record of her ever having the money, and no insurance to replace it. She knew she needed to open a bank account to deposit the money there. You should, too.
10. What about those check cashing places?
Stay away from those. Trust us on this. They charge very high fees to cash a check. You may as well set your money on fire. Get a nice checking account from an actual bank or credit union. You’re welcome.
11. What if I want to take one step up from putting money in a savings account?
Look into options for investment or savings product at your existing financial institution. Do they have a certificate of deposit (known as a CD) that you could buy? You pay a set amount of money for a higher interest rate than your savings account, but agree not to have access to it for a set period of time.
The longer the period of time, the higher the interest rate. Your money is still safe, still ensured, and earning a bit more than before. You can even buy a CD every six months so that over time, every six months or a year, one of the CDs matures and the funds are available for you to use again.
12. Consider a mutual fund
Another great beginner step to investing is to look into investing in a mutual fund. There are some geared toward beginners where you only have to put in a few hundred dollars or maybe a thousand dollars at the most. Find a reputable company, like Vanguard or Fidelity, and take some time reading through the listings in the different funds.
A mutual fund is when a professional financial manager chooses a selection of stocks to put together in one investment that lots of people can buy shares of. So one share of your mutual fund might net you a tiny bit of stock in a number of companies that you would not be able to afford otherwise.
This also mitigates your risk (though there is always risk that you could lose your money in an investment. Always), because if the value of one stock goes down, you will only lose a small amount of money. It’s sort of the principle of not putting all of your eggs in one basket. If you have $1000 to invest, don’t put it all in one stock and let it ride. Instead, spread it out over many stocks.
13. Consolidate your financial life.
Perhaps you have a bank account already. Maybe you have two. If you have had a full-time job before, you may have a retirement fund with that organization. Once you leave, the money stays put until you take steps to move it.
The money is safe where it is, but it’s also doing nothing for you. It is worth the effort to consolidate your accounts. Close out bank accounts until you have one savings and one checking account, minimum, with one financial institution. Once you do that, you are at ground zero and can start making some decisions to intentionally move money around.
14. Manage your credit cards
While credit cards are unavoidable in today’s financial climate (after all, try booking a plane ticket without one), they can lead to trouble if you’re not careful.
Pros of credit cards:
- They help you buy things easily
- They help you buy things online
- They build a credit history
- They contribute to your FICO score
- You can earn points and rebates from some of them
Cons of credit cards:
- You can quickly and easily wind up in debt with them
- Spending via credit is very easy, and the next thing you know, you could owe a lot of money on things you really shouldn’t borrow money to buy, such as new shoes or dinner out
- Did we mention the debt?
The interest rates on credit cards are exceptionally high and can put you in a never-ended cycle of making minimum payments and not crawling out from under the debt. Credit cards are at once your friend and not your friend. They are like the Schrodinger’s cat of personal finance.
15. Automate everything.
Here is one place where you can and should set it and forget it. Most banks allow you to set up recurring transfers between your accounts. You can have your bank automatically move a set amount of money from your checking account into your savings and vice versa.
This is a great way to ensure that you pay yourself first, putting some money, even if just a little, into savings on a regular basis. If there is one financial tip we can share today that is the most important of all, it’s to pay yourself first. Try five dollars a month if you don’t think you can do more.
Above all, be realistic
Saving never ends. Learning about your finances never ends. There is no set it and forget it. Embrace managing your finances as a hobby and not a chore and you will open your eyes to new possibilities for financial freedom.
The point in all things financial wellness is that it isn’t the dollar amount that you save, it’s the habit that you build that matters. Make sure you manage your money, don’t let your money manage you.