I knew nothing about money when I graduated college, but a surprise $3,000 tax bill taught me 2 financial lessons I still live by
As an intern in New York City in 2007, I was earning $13 an hour and living the dream. Until I got an unexpected $3,000 tax bill. Taxes weren't being taken out of my paychecks, and I didn't know I should be setting aside money to pay the bill at the end of the year. Luckily, my mentor helped me get on my feet and taught me two key lessons: First, that I actually love dealing with money (and I'm good at it). And second, most financial goals can be reached by saying them out loud and making a plan.
Read more personal finance coverage.
In 2007 I was living what I considered to be the dream. I had scored a paid internship at a women's magazine in Manhattan, and had found an apartment in the city with two roommates I adored. One of my best friends from college was working in the same building, and another one was right across the street. Life was peachy. What could possibly go wrong? I'm not sure what paid interns make at magazines these days (if that position even still exists), but back in 2007 I thought, naively, that $13/hour was plenty to live on, in one of the most expensive cities in the world. I was lucky enough not to have student loans to worry about, and I wouldn't need a car. Although I had little to no real financial education up to this point — I certainly never took any courses in high school or college — I figured I could handle whatever else might come my way. My financial wake-up call My first mistake was not considering taxes. When I received my paycheck — which didn't have the taxes taken out — I spent every last penny on rent ($1,310, if I remember correctly), utilities, food, transportation and, let's be honest, partying. I had wanted to live in the city since graduating from college two years prior, and I wasn't going to let being broke stop me from enjoying it. My second mistake was not worrying about good health insurance. It wasn't offered as part of my internship, so I decided to forgo a solid plan in favor of something that would have had serious financial consequences had anything happened to me medically. It's not uncommon for young and healthy kids to think they're invincible, and I was one of the many. My first clue that I needed to get a better grip on my finances came in the form of a $3,000 tax bill the first year after I started interning, which might as well as have been $30,000 to me. With some serious budgeting in the month or two leading up to paying the bill — plus a loan from Grandma — I was able to pay my taxes, but I never wanted to be that unprepared again. How I learned to love talking about money Lucky for me, an editor I was working with at the time — who remains my mentor and good friend to this day — noticed my growing frustration at work (I have no poker face) and took me under her wing. She convinced me to start a savings account and get better health insurance, no matter what financial finagling it took.
We talked about my goals for my career and how I would reach them, and she helped me set up an action plan for paying down the credit card debt I had been accruing. While all of those lessons were crucial, my financial guru taught me two other important things: 1. Once I got a handle on it, I actually really enjoyed discussing finances I loved making budgets and creating ways to reach goals, too. So much so, in fact, that I decided to make it my main focus, journalistically speaking. 2. Most of your financial goals can be reached when you say them out loud and create a plan Money is still such a taboo topic these days, it can be hard to imagine why you'd want to talk about it. But imagine finding that one person who has the perfect suggestion that might jumpstart your financial dreams. You'll never find them if you stay silent. My editor at that women's magazine so many years ago did just that for me, and I'm still grateful to her every single day. Talking things over tends to make most topics seem less scary, and finances are no different. If you can find a way to become more comfortable talking about money, you might be surprised what revelations come.
More personal finance coverage 4 reasons to open a high-yield savings account while interest rates are down It took less than 10 minutes to open a high-yield cash account with Wealthfront and earn more on my savings How to buy a house with no money down When to save money in high-yield savings Best rewards credit cards 7 reasons you may need life insurance, even if you think you don't Join the conversation about this story » NOW WATCH: The surprising reason Americans drop a ball on New Year's Eve
More like this (3)
As a financial planner, I see the choices millennials are making with their money. Some...As a financial planner, I see the choices millennials are making with their money. Some are good, while others have long-lasting negative impacts they might not realize. Many aren't saving enough for retirement — or saving anything at all — and missing out on employer-sponsored 401(k) plans and matches. Most millennials I work with don't have life insurance, even though term insurance costs about $20 to $30 a month for a young, healthy individual. Policygenius can help you compare life insurance policies to find the right coverage for you, at the right price » When it comes to managing money, there isn't one right way that works for everyone. As a financial planner, I know first-hand how personal your personal finances can be. Millennials have different financial habits than generations before and are more likely to have lifestyle creep and delay saving for retirement. If you're a millennial, don't make these money mistakes. 1. Paying off debt instead of saving for retirement Somewhere along the line, millennials started to think paying off loans was more important than building their nest egg. Having debt can be a burden, but you'll be in more trouble if you put off saving for retirement. Contributing to your retirement should be a top priority no matter how old you are. If you can't save a lot right now, start small and slowly increase your savings rate over time. You might start with 5% and work your way up from there. 2. Allowing lifestyle creep Lifestyle creep is an easy trap to fall into. I see clients who get a better job or a raise at work and buy more expensive things because they think they can afford to splurge now. You might upgrade your car because $200 a month isn't a big deal, buy nicer shoes, or subscribe to more streaming services. While Hulu, Netflix, Spotify, and Amazon Prime aren't much on their own, the costs can really add up month after month. Look at what you're spending your money on and cut out a few things. Even if it's just a few dollars, your future self will thank you for it. 3. Not buying life insurance Most of the millennials I work with don't have enough money saved to take care of their family if the worst should happen. But they also don't have any life insurance. What millennials don't realize is that term life insurance is cheaper than they think. For $20 to $30 a month, you could have a death benefit of $500,000 or more to protect your loved ones after you're gone. 4. Skipping out on an employer's 401(k) plan The earlier you save for retirement, the better off you'll be. The trouble is that millennials opt out of their employers' retirement plan because they don't think they will work there until they retire. But you don't have to make a long-term commitment to an employer to take advantage of their 401(k) plan. Any money that you contribute to your plan, you get to keep. If you add $100 a month and switch employers after a year or two, you get to take that money with you. It's called vesting, and you are fully vested in your contributions at all times. 5. Risky investing New apps and investment options are causing millennials to be impulsive about their investing. While a new app or up-and-coming cryptocurrency might sound promising, they could open you up to more risk than you can comfortably tolerate. You should never invest money that you can't afford to lose. Before putting money in the "next big thing," figure out how much risk you're willing to take on and stick with that approach. If you're not sure, get help from a financial planner to make a strategy to reach your financial goals. More financial planner coverage Everything you need to know about financial planners 5 times you should consider meeting with a financial planner People with a financial adviser say they aren't just better with money — they're happier with life overall Here's how much a financial adviser costs Join the conversation about this story » NOW WATCH: Why electric planes haven't taken off yet
A startup founder who spent 100 hours interviewing millennials found 3 hangups usually keep them from being good with money
Sunny Israni, founder of personal finance app Clasp, spent over 100 hours interviewing millennials about...Sunny Israni, founder of personal finance app Clasp, spent over 100 hours interviewing millennials about their money perspectives and habits. In his interviews, he found that millennials who aren't good with money don't have a clear vision of what money means in their life. He also found that they tend to over-spend in social situations. And, when millennials fall behind their peers financially, some of them have a tendency to give up. What separated millennials who are good with money from those who aren't is mindset — they know what role money plays in their lives and have goals, have boundaries on spending, and work to improve their finances. Want to do better with your money? SmartAsset's free tool can help find a financial adviser near you » Sunny Israni wanted to know what separated the millennials who are good with money from those who aren't. So he asked them. For his new business, a personal finance app called Clasp, the tech entrepreneur and former Wall Street trader spent over 100 hours talking to millennials across the US about their money habits, attitudes, and goals to find out what made millennials good with money. "I wanted to target two different groups: people who tend to make really great decisions around their finances, and people who may not have made the best decisions," he told Business Insider. "I wanted to try to understand, 'what are the big factors that drive the quality of our financial decisions? Is it income? Is it geographic location?'" He found that what made millennials good with money wasn't either of those factors. Rather, it was how they thought about money. In his research, Israni found that three main psychological hurdles tend to keep millennials from being good with money: 1. They don't know what money means to them Israni found that nothing had a bigger impact on how millennials manage their money than their mindset. "I think about it in the terms of identity. As I was speaking to a lot of the participants, I got the sense that when people describe their financial behavior, they're really describing who they are as people," Israni said. "It's like their spending is a declaration of their identity." Millennials who are good with money tended to have a clear vision of what they want from it, and know their money goals. "I spoke to someone from the Midwest who was early in his career and really militant with savings. I got the sense that he was deriving his whole identity from financial freedom. He had crystal clarity on what money represented in his life," Israni said. "People who weren't necessarily making as sound financial decisions had this tension around what money really represented in their life." This tension tended to mean more than internal conflict for the millennials Israni spoke to — it also led to bad habits. "The people who had that tension the most tended to be the people who didn't necessarily make the best financial decisions," he said. 2. They don't set limits on social spending Israni noticed a bad habit that held millennials back: Spending too much on social situations. He also noticed that millennials who are good with money knew where to draw the line on their social spending. "When you're in social situations, people tend to spend more, and we know this. But when I looked at the people who are doing really well, I've found that almost all of those people had an understanding with their friends and their social circle around activities that made sense for them, and that were not necessarily so expensive," he said. "I got the sense from everyone that the price tag you pay to pursue a social activity almost never really correlated with the joy and happiness and the memories that come out of that." Meanwhile, the others kept spending, and weren't honest and realistic with their friends about what they could afford. "The people who weren't making sound decisions didn't talk about it with their friends," Israni said. Israni made it clear that cutting out social spending isn't the answer. Rather, it's about knowing where your boundaries lie. "Have a list of things to do that don't necessarily break the bank," Israni said. "Your friendship with someone shouldn't be expensive." 3. They adopt a 'screw it' mentality and stop trying Israni found that millennials who were financially behind didn't feel that anything could change for them. He found that eventually, they stopped trying. In his opinion, it all comes back to mindset. "After they were past a certain level of circumstances, they got into this whole 'screw it' mentality, where they just felt like they couldn't get a leg up," Israni said. "Oftentimes, it was mental. They felt so behind their peers that they just said 'screw it.'" "It's exacerbated by the current macro trends, especially around climate change and our political system," Israni said. "People are like, 'well, climate change is going to end the world anyway, so might as well live it up right now.'" For a generation that's been behind financially from the start, that's a problem. "It is very much negatively impacting financial behavior, especially for people who are already behind," he said. For these millennials, Israni said making progress comes down to thinking differently. "If their mindset isn't right, then they're not going to use any budgeting, whether that's a spreadsheet or an amazing app or even just you looking at your bank account," he said. Millennials who are good with money, he found, want to improve their circumstances, and don't let the doom and gloom stand in the way of their money goals. SmartAsset's free tool can find a financial adviser to help you get better with money » More personal finance coverage 4 reasons to open a high-yield savings account while interest rates are down It took less than 10 minutes to open a high-yield cash account with Wealthfront and earn more on my savings How to buy a house with no money down When to save money in high-yield savings Best rewards credit cards 7 reasons you may need life insurance, even if you think you don't Join the conversation about this story » NOW WATCH: How to find water when you're stuck in the desert
High-yield savings accounts are great for emergency funds, down payments, and savings goals. I particularly like...High-yield savings accounts are great for emergency funds, down payments, and savings goals. I particularly like Ally Bank's high-yield savings account for its combination of low fees and competitive rates. Its easy-to-use interface also allows you to set up automatic transfers and create "buckets" of money for your separate savings goals. See Business Insider's picks for the best high-yield savings accounts » When I was a kid, my mom took me to a local bank to open my first savings account. My "Dinosaver" account came with a free dinosaur toy, which was a pretty big selling point for me as a young boy. But these days, I care a lot more about interest rates than toys and gifts from my bank. Today, I keep a good chunk of my savings at Ally Bank, which I also suggest to my sister, friends, and other people who want to level up their savings. Let's dig into the details of Ally Bank Savings to see why I recommend it to just about anyone. Ally's account doesn't let fees eat into your savings As a former banker, I firmly believe you should never have to pay any fees to keep your money in a savings account. Some big banks charge you $10 or $15 per month if you don't keep at least a certain minimum balance. That's a bad deal for customers. You shouldn't have to pay a monthly fee regardless of your balance. Ally Bank's Online Savings Account doesn't charge any fees for regular activity. You may get charged for overdrafts, depositing bad checks, sending outgoing wires, and other less-common activity. But for just keeping your money in the bank, you won't pay a thing regardless of your balance. Interest rates are important for big balances, and Ally's are competitive My sister followed our parents' example and had her bank accounts at the same big, traditional bank during college. But after getting charged a fee for going under the minimum balance one month, she took a closer look at the terms. She called me up and said, "Did you know my savings account pays just 0.01%?" I did know, and helped her decide where to put her money for better rates. Like every other bank, Ally's interest rate varies — in the past year it's climbed above 2%. But even at 1.60%, that's 160 times more than my sister would get with her old account. After years of earning practically nothing for her savings, she called me after a month at Ally excited by how much she earned. Less than 2% interest probably won't make you rich, but it's a lot better than the average savings account. Multiple accounts and savings buckets give you more control Money-smart households are sure to save for emergencies. I keep part of my emergency fund at Ally Bank. After dealing with a few big annual bills, I decided to store more for other purposes at Ally, as well. I opened a second savings account at Ally where I put away $250 per week for my property taxes and insurance. Ally makes it easy to have multiple accounts, but you can also save for specific goals in one Online Savings Account. With savings buckets, you can divvy up one savings account for multiple goals. For example, you might want to save for a trip, down payment on a home or new car, taxes, or anything else you choose. Savings buckets act like sub-accounts inside of an existing savings account. You can add up to 10 buckets per savings account. Power up your account with smart saving features While I love my Schwab checking account for the ability to use any ATM in the world with no fee, it doesn't give me the best tools for automated savings. It doesn't even offer the ability to save on a weekly schedule, so I set that up through my savings account at Ally. But that's just scratching the surface on what Ally can do. In addition to setting your own recurring transfer schedule, Ally has a "Surprise Savings" feature that transfers in savings based on your income and spending habits automatically and behind the scenes. Just like savings product Digit, which charges a monthly fee for a similar service, computers at Ally analyze what's safe-to-save without overdrafting. It makes surprise transfers to grow your savings balance with almost no effort. Don't leave your savings in a poor-performing account A bad savings account is still better than keeping your money under the mattress or in a coffee can buried in the backyard, but you should expect more of a bank than just FDIC insurance and a pretty lobby. You should expect low fees and competitive interest rates with no exceptions. Ally Bank offers consistently great rates and low fees on all of its products, including checking, savings, and investment accounts. I spend a big portion of my day reviewing bank accounts, and I use Ally bank myself. It's one account I'd recommend to just about anyone. Eric Rosenberg is a former bank manager and corporate finance and accounting professional who left his day job in 2016 to take his online personal finance side hustle full-time. More savings and retirement coverage How to retire early The best high-yield savings accounts right now The banks with the best CD rates When to save money in high-yield savings Join the conversation about this story » NOW WATCH: 62 new emoji and emoji variations were just finalized, including a bubble tea emoji and a transgender flag. Here's how everyday people submit their own emoji.