As we look back on the year that was 2020, the data will undoubtedly yield an abundance of interesting insights on every imaginable front. Taking just a glance at how consumer spending habits shifted, one fascinating number jumps out: According to CNBC, investment spending was up almost 42% year-over-year in the summer of 2020.1
Of course, it shouldn’t take something like a global health crisis to get us thinking about our financial health. But while everyone seems to be thinking about it anyway, we’d like to offer a few helpful hints for those who might be starting to set some financial goals.
You’ll find plenty of resources for nuts-and-bolts financial advice. Here, we just want to give you some tools for rethinking some of the financial planning steps you might be putting off — a way to look at them from a new perspective. What you do with it all should be up to you.
1. Would you pass the marshmallow test?
There’s a pretty famous experiment2 that was developed at Stanford in 1972. In the experiment, a child is given a marshmallow. Then the child is told that they can either eat the one marshmallow OR wait and get an additional marshmallow after a period of time.
The researcher then leaves the child alone in the room with the decision — take the immediate gratification or hold off for the bigger reward.
The experiment is about self-control and delayed gratification, the implications of which resonate well into adulthood. Do you, for example, have the self-control to save money for a pair of fancy shoes, or do you just whip out your credit card?
Of course, as an adult, the downside of your need for immediate gratification isn’t just the sacrifice of one sweet little treat; it’s paid for in interest. You buy the shoes now, but you pay much more for them and do so over a much longer period of time.
Credit card companies make their money from your need for immediate gratification — they bet on your inability to pass the marshmallow test. So, focus on self-control and proving them wrong.
If you must slap plastic, get in the habit of using your debit card instead, and maybe wear the fancy shoes you already own for just a little longer while you save for the new ones. Who knows? Maybe once you’ve saved, you’ll decide there’s something else you want to do with your money instead. Like, maybe start a fancy shoe company of your own!
2. Pay yourself first.
The word “saving” is a horrible bit of branding. “Saving” is about restraint and control, and let’s face it: Those things are great for your financial future, but they aren’t very fun.
Paying yourself, on the other hand — that’s something we can all get behind! Getting paid feels fun! It’s semantics, of course, but how we think about money, or about anything else, has a lot to do with how we behave.
So before you start doling out your hard-earned money to everyone waiting to take it from you — your landlord, the bill collectors, your cable company, Jeff Bezos — pay yourself first. Set a salary for yourself and pay it.
Don’t just stick it in an old coffee can, either. Put it somewhere that it can keep working for you — a high-interest savings account, a money market fund or a CD. If you don’t, you’ll end up leaving money on the table, and that is not a very Warren Buffett thing to do.
After paying yourself for a while, give yourself a raise. You work hard, and you deserve it!
Before long, you’ll start to see the results of your actions, and that’s gonna give your financial habit more and more positive reinforcement.
3. When it comes to finances, trust yourself most of all.
Remember: Even if you don’t know the first thing about money, it’s still your money.
Yes, seek advice. Yes, ask questions. But don’t let anyone else tell you what to do with your money. It doesn’t matter if it’s a financial advisor, a college buddy or even your Uncle Craig — if taking advice doesn’t feel comfortable to you for any reason, just don’t do it.
Of course, not everyone is out to get you. Their intentions might very well be the very best. But in the end, only you can decide if, say, you’re ready to take on a mortgage even if the adjustable rate feels a little risky. Or if that alpaca farm in Vermont is worth investing in. Or even if you’ve got enough dough to blow on a night out with your friends.
Read books. Do research. Arm yourself with information and trust your gut. In the end, you might make some good choices and some bad ones. Either way, those choices will be yours, as they should be.
4. Don’t do “disposable income.”
You hear about young people with “disposable” income a lot. What they mean is that after paying rent and bills (and don’t forget student loans), young people don’t have to pay for things like childcare or property tax, so they can almost literally throw money away on restaurants, cocktails, clothes and entertainment.
“Disposable” is a horrible word. It makes it sound like that’s what we’re supposed to do with whatever so-called “extra” money we might have. Truth is, there’s no such thing as genuinely “disposable” income.
Of course, we can each decide how we’re going to spend our own money. All we’re saying is that you should always understand exactly where that money’s going.
Don’t fall for “disposable” as an idea. Track spending on eating out, on coffee and booze, on cabs. Track all the “little” $3.99 charges for on-demand movie streams and random things like ATM fees, too.
Start there. Then decide what you want to do next. Maybe you’re fine with your current spending habits. Maybe you decide it’s time to start spending more intentionally. Either way, at least you’re not hiding your head in the sand, financially speaking.
5. Let’s rename “retirement.”
Another rather crummy financial word: “retirement.” It’s sort of self-defeating, isn’t it? It feels like a faraway impossibility. “Retirement” sounds like “tired,” and clearly, whoever thought of the word doesn’t know how hard you crush CrossFit!
The reality is, when we’re just starting out in life, we’re expected to pay some dues. It’s not always fun, but saying “no,” in many cases, is a luxury that needs to be earned. Of course, time alone won’t afford you the freedom to make all the choices you’d like, and no matter how much experience you gain, life will always serve up some tough times. But having some money in the bank can help. Can it buy happiness? Not exactly. But it can buy freedom. Having a good financial footing means that you gain more wisdom and insight into the things that make you truly happy and fulfilled.
So, don’t make a “retirement plan.” Instead, plan for a future where you’re free to do only the things you want. And feel free to call it whatever you want.
6. Insure your health and your wealth.
One of the best things you can do to insure your long-term financial goals is to insure your short-term well-being, specifically with health insurance and renters insurance (and it’s not just because we sell renters insurance either).
Hopefully, you’ve got health insurance through your employer. If not, make it priority #1. In America today, medical expenses account for about 40% of bankruptcies.3 And nothing will impede your financial-forward progress like an unexpected and uninsured hospitalization.
Renters insurance should be a no-brainer, too. Even at its most expensive, renters insurance is relatively inexpensive — starting as low as the same monthly price as a subscription streaming service. And with renters insurance from Toggle®, you can adjust your monthly premium and coverage as much as you like, so you don’t need to feel locked in or limited.
Renters insurance helps cover the value of your stuff in case of theft, loss, fire or flood damage. It also helps cover your liability if something should ever happen to a guest while they’re at your place. Toggle® also has some great add-on options for pet parents and side-giggers.
Look, paying any insurance premium can sometimes feel a little useless. But that time when you really need it, insurance can rescue you from financial ruin. So definitely get those two forms first.
What about things like life insurance? Well, as with any choice, that’s up to you, but the rule of thumb is typically that you invest your money elsewhere until you’re married, or even until you eventually have children. However, keep in mind, life insurance oftentimes costs less if you lock it in while you’re younger. So, consider what is best for you — keeping the rule of thumb to cover the basics for now, then cross those insurance bridges as you come to them.
7. In conclusion.
Everybody knows that talking about finances (and making a plan for them) is an important thing to do. There’s a massive chasm between what you know you should do and actually doing it. Just know this: Everyone’s in the same boat as you. Everyone has questions. Too few people ask those questions. And fewer still are making real plans for the future. Be one of them, starting now, right after you finish reading this random blog post, and you’ll be way ahead of the game. You can thank us when you’re 65.
For more tips on how to adult better, check out this blog.
1 Megan Leonhardt. (2020, Sept 29). 64% of Americans have changed their spending habits during the pandemic–here's how. CNBC.
2 Navidad, A. E. (2020, Nov 27). Marshmallow test experiment and delayed gratification. Simply Psychology.
3 NCBI. Medical Bills Account for 40% of Bankruptcies. NIH.gov.
The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. It is only intended to provide education about the financial industry.