A note from Clark Howard on the author, Matthew Quinlan: It was my privilege to get to know a long time listener to the Clark Howard show named Matt Quinlan. Matt lost his battle with cancer way too young at the age of 41. Matt was inspiring because of his unbelievably positive attitude as he stared death in the face. He was also inspiring because of how he lived his life financially. After his visit with me in the studio a few months before his death (listen here), Matt took lessons he learned from me and from others and turned them into a blog post. It was important that he share this information with others so that they could live a more secure financial life as well. That was important to him even in his final days.
We are making Matt an official member of our team and an author on the website so that his teachings can stay with us even though he is gone.
I want to thank his wife Kristen for feeling so strongly about sharing Matt’s wisdom with others and allowing us to provide a platform for it.
Scroll down to read Matt’s tips and for links to more of his advice.
Financial freedom: Know the basics
Act Your Wage
Live on less than you earn. I know this sounds trite, but it is truly that simple. While this may be unrealistic for those near the lowest rung of the income ladder, it shouldn’t be a problem for anyone making a median wage. I know far too many people who make over six figures and still live paycheck to paycheck. Keep reading to learn how!
If you have any debts that accrue interest above 5%, use the extra money at the end of each month (from Acting your Wage) to eliminate these debts first (usually credit cards). Don’t worry about mortgage debt or auto loans that are small and manageable with low interest rates for less than four years. Pay those off as agreed.
Once the debts are paid off, with the extra money that you have at the end of each month by ‘Acting your Wage’ start by saving up 6 months of basic living expenses which you keep in a separate bank savings account. This money is not to be borrowed for vacations or purchasing a boat or any other purpose. It is for emergencies only (e.g. extended unemployment, medical issue, critical car repair, or any other unexpected emergency!
Read more: How to be smart about banking
The Next Dollar
Once you have built your emergency fund up to the six months of living expenses, you can now redirect your monthly surplus to other saving and investing opportunities. The key is to build a plan for each ‘next dollar.’ That is ‘if I had one more dollar saved, how would I use it?’ Typically, you will want to save/invest for retirement first and if you have children, a 529 college savings plan next (your kids can always borrow for school, but you cannot borrow for retirement, so max your retirement options first). Both have great tax advantages. Here is my personal ‘next dollar’ investment list : Roth 401(k), Roth IRA, Georgia 529 College Savings Plan, taxable investment account with Vanguard (all index funds).
Saving vs. Investing
If you have extra income and are trying to decide what to do with it, you need to understand whether that money is intended to be used within the next five years. If the answer is yes, then you should be saving that money in a bank account or CDs. If the answer is no, then you can look at investing that money to make it grow (see my investing tips).
This is an amazing tool available online, as well as via an app for your phone or tablet. It provides a single view of your entire financial life, including current balances for all banking, investing, credit cards, retirement, and every other account you may have, along with detailed transaction logs for all of those accounts. Best of all, it uses crowd-sourced intelligence to automatically categorize your purchases based on the merchant. For example, if 90% of people categorized purchases at Starbucks as ‘Coffee,’ then it will default your purchase to the ‘Coffee’ category. You can easily see what you spend and how/where you spend it. It also has budgeting and online bill pay. Best of all, it requires almost no manual effort, because it does almost everything automatically (stop using cash and use a debit card to increase automation). Oh, and it’s FREE! You can’t manage what you can’t measure; so sign up for Mint.com today. Tip: Combine Groceries & Household into one Mint category to simplify categorization so that you don’t need to split out how much you spent on detergent versus milk, for example.
ALWAYS review your transactions in Mint.com to look for anything suspicious. This used to be a pain, but with the tool providing a single list of all of my transactions across all credit cards, checks, ATMs, debit cards, etc., it’s quite easy (takes 5 minutes/week). You have only 60 days to contest invalid credit card charges with your card provider. My wife and I once gave someone a $26,000 Christmas present on our American Express without our knowledge. That was easy to spot, but if someone is just milking you for $30/month, you may never notice — unless you check!
Have a budget spreadsheet based on your Mint.com data for planning. And review the budget from last year, comparing it with the actual spending from Mint.com at the beginning of the following year. Adjust budget as necessary.
Agree with your spouse to NEVER spend over $X without discussing it first and NEVER spend it before 24 hours have passed (typical buyers remorse timeframe).
More advice from Matt Quinlan: