5 Things You’ve Always Wanted to Know About Money – Budgeting & Debt Edition

On this week’s episode of the podcast, we answered a few of the most popular questions around budgeting, paying off debt, and a special reader question on saving for your child’s education.

If you missed our first episode, be sure to check it out here, as we covered investing and credit – two important topics that most people are afraid to learn about, or don’t think are important enough.

The truth is, when it comes to your money, just about everything matters. There’s no such thing as knowing too much. Educating yourself is the first best step you can take, as any of us can attest to.

That’s why we wanted to take some time to address these questions. We hope they help you!

Want to learn about saving for your child's education, budgeting, and debt payoff? Learn the best methods for each (they may not be what you're expecting!).

1. How Can You Budget?

“Budgeting” is a really broad term, and there’s not much use in trying to wrap it up nicely with a bow on top.

At its core, a budget is a tool that will allow you to achieve your financial goals. You should be aware of how much is coming in, and how much is coming out.

It doesn’t necessarily  need to involve a spreadsheet, fifty-million different categories, an app, or a pen and paper. It can take whatever form you need it to so you can make it work.

One example we spoke about was the 50/30/20 budget, where you spend 50% of your money on necessities, 30% on discretionary expenses, and use 20% to save or pay off debt. This doesn’t involve detailed line-items, so it’s an easier way to manage things.

Bottom line: there are a ton of ways to budget, and none are fundamentally right or wrong. Experiment, and find what works for you.

2. How Do You Stop Living Paycheck-to-Paycheck?

Budgeting definitely comes into play here. As we said, you need to know what’s coming in and what’s going out. If you don’t, then you could be spending more than you earn, which immediately places you in the red.

If your money isn’t lasting you all month, then you need to do something about it. Try a combination of:

  • Cutting your expenses
  • Earning more
  • Tracking your spending
  • Paying yourself first

Cutting back helps you in the present, as you should be able to find expenses to reduce to put more money in your pocket. If you can’t, then it’s time to focus on earning more money.

Tracking your spending helps you become aware of any leaks your budget might have. You might find you’re spending more on food or clothing than you originally thought.

Finally, paying yourself first ensures that some of your money makes it to savings, so you’re getting out of the paycheck-to-paycheck cycle. It’s best not to leave it till the end of the month if you’re finding yourself with nothing left.

3. What’s the Best Way to Pay Off Debt?

As we spoke about in our debt payoff episode, and similar to budgeting, there’s no one best way to pay off debt. It’s whatever method that works best for you.

For example, some of us prefer the debt avalanche method, which focuses on paying off the debt with the highest interest rate first. This will save you more money in the long run.

On the other hand, some of us find it easier to follow the debt snowball method, which tackles the smallest debts first for quicker wins.

Or you can combine the two! As long as you’re paying your debt off month by month, you’re moving in the right direction. You simply need to prioritize it and commit to paying more than the minimum payment.

4. How Should You Save For Your Child’s Education?

Listener Tiffany sent us this question, and we were super excited to answer it! Unfortunately, the “moms” of the podcast weren’t able to make this episode, so we did the best we could. We may end up dedicating an entire episode to this down the road.

Long story short, 529 plans are likely to be your best bet. They’re the most popular for a reason. We wouldn’t recommend stashing the money away in a savings account, money market account, or CD, because those won’t earn you nearly enough interest to keep up with inflation.

As we all know, the price of tuition is only increasing, so that’s important to keep in mind. 529 plans usually involve mutual funds or ETFs which should keep pace with inflation, and depending on the plan and the state in which you reside in, may also provide you with tax benefits.

However, keep in mind that state-sponsored 529 savings plans are better to go with than pre-paid plans. While they “promise” to lock in tuition at today’s rates, they aren’t guaranteed, and if the state doesn’t have funding for them, they may get shut down.

5. Can You Become Rich Working For Someone Else?

This was an interesting question. We both agreed that it’s totally possible.

Yes, self-employment means that you have more control over your earning potential, but there are several costs (like health insurance and taxes and saving for retirement) that employers will cover.

As long as you’re a diligent saver and a wise spender, there’s no reason you can’t retire rich from a “regular” day job. Of course, this is easier to do if you have more opportunities to advance in your field, but there have been plenty of stories of teachers retiring rich.

Being an entrepreneur may be a quicker path to wealth, but you can still become rich working for an employer.

That wraps up our answers for this round! If you’d like to ask us a question about your financial situation, please leave a comment, connect with us on Twitter, or email us!

Were you surprised by any of these answers? Do you have a different opinion? Any questions?

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