When it comes to how you should spend and save your hard-earned cash, the internet is overflowing with free advice. But with so many tips at your disposal, it can be tough to know which ones to trust.
How about advice that represents the wisdom and experience of more than 12 million people?
We’re talking about r/personalfinance, the extensive and active Reddit community that’s constantly collaborating on solutions for its members’ financial questions and concerns. For the uninitiated, Reddit bills itself as a haven of open discussion and debate on nearly any topic imaginable. It’s currently the fifth most visited site among Americans, and r/personalfinance is among its most active subreddits or topic-centric spaces. Members’ votes elevate posts and discussions, so the quality of a post is determined democratically.
From recommendations on food to favorite films, crowdsourcing is an increasingly influential part of how the web shares information. In the age of massive Reddit engagement, personal finance advice is no exception – and you can benefit from the knowledge of millions of wallet-conscious members. In this post, we’ll bring you the best tips from r/personalfinance, so you won’t need to scroll through dozens of threads to find the money advice that applies to you.
How To Handle Your Money - The Best Advice From r/personalfinance
|Reddit's 6 Steps To Financial Stability|
|Step 1||Build a budget|
|Step 2||Start an emergency fund|
|Step 3||Max out employer retirement fund matching|
|Step 4||Invest in an IRA|
|Step 5||Tackle debt priorities|
|Step 6||Make other investments for your future|
Build a budget
One of this subreddit’s virtues is its willingness to advocate and explain basic financial habits. Chief among them is building a realistic budget, which will give you a better sense of how to approach your financial goals. Without a clear sense of how your expenses stack up to your income, you’ll be left guessing on many essential fiscal questions.
If creating a budget from scratch sounds intimidating, the community provides many free templates you can download to get started. They vary in their content and complexity, so check out a few to see which one works best for you. If you’re relatively new to budgeting, a simpler variation like the “Budgeting 101” spreadsheet should serve well as a starting point.
Once you’ve established a budgeting style, take a look at some of the community’s budgeting-related posts. There are a ton of conversations worth exploring if you’re looking for ways to reduce your expenses, take advantage of deals, or compare your budgeting philosophy with that of other members.
Start an emergency fund
Few things in life always go precisely according to plan, and your finances aren’t immune to sudden setbacks. Murphy’s Law can apply where your money is concerned, with unanticipated threats like illness, car repairs, or job loss affecting millions of Americans each year. That’s why Redditors recommend building an emergency fund in case the unexpected strikes.
The appropriate size of your emergency fund is the subject of some discussion among the subreddit’s members. Ultimately, your ideal savings safety net will depend on your means and needs. Typically, Redditors suggest having the equivalent of three to six months of expenses saved away, so you’re covered during temporary financial trouble. Others, however, may want to have up to a year’s expenses saved away, particularly if their future income is inconsistent or uncertain.
Of course, a sizeable prudent reserve simply isn’t possible for everybody. A recent Federal Reserve Board study found less than half of Americans could manage a three-month financial disruption by tapping into their savings, without borrowing money or selling their assets. But r/personalfinance encourages even those with limited income or significant debt to shoot for at least one month of emergency savings. Without it, a sudden challenge could push their financial situations from difficult to disastrous.
Make the most of employer matching
If you’re fortunate enough to be enrolled in your employer’s retirement savings plan, Redditors urge you to contribute at least enough to max out your company’s matching policy. They aptly compare it to an instant return on investment: How else can you see your savings double the moment you put money away?
While this rationale is hard to resist, you have to commit to leaving that cash untouched for a while. If you dip into these pre-tax retirement savings before the age specified by your plan, you’ll be penalized with 10% tax for doing so. Maxing out matching can yield huge rewards in the future, so your delayed gratification should be well worth the wait.
Once you get beyond these simple principles, the business of 401(k)s, IRAs, and similar programs can get tricky quickly. Thankfully, the subreddit’s retirement topic section offers solid advice on the finer points of these plans. We particularly recommend reading the 401(k) page if your employer offers one. Some jobs offer SIMPLE IRAs instead, so check out the IRA alternative if that’s the case for your company.
Explore other retirement options
Contributors to r/personalfinance are really into the idea of being able to retire early – and who can blame them? In addition to making the most of your employer’s retirement savings plan, they recommend putting 15 percent of your income toward an IRA, until you hit the annual limit of $5,500, or $6,500 if you’re older than 50. Because these accounts are intended to fund your retirement, you won’t be able to use this money without penalty until you’re at least 59 ½. There are some limited exceptions to that rule, however, if you qualify through certain needs and circumstances.
Depending on the status of your employer plan, all or part of these traditional IRA contributions will be tax deductible. A Roth IRA offers a slightly different benefit with taxed contributions but no tax once you take the money out in your retirement. The subreddit’s post on the distinctions between traditional and Roth IRAs will come in handy if you’re choosing between the two.
While you probably don’t get a say in which 401(k) provider your job offers, you do have a lot of IRA options to choose from. Redditors recommend low expense ratio index funds, which won’t cost a lot to open. For a deeper dive into IRAs, check out their thread on the subject.
Set priorities for paying down your debt
With America’s total household debt nearing $13 trillion, plenty of us are looking for ways to pay back what we’ve borrowed as swiftly – and smartly – as possible. That’s particularly true in the age of widespread student loans, with the average graduate today facing more than $30,000 in educational debt, according to the latest figures. Thankfully, r/personalfinance is full of helpful tips for tackling debt payments productively.
The subreddit suggests two major strategies for approaching your debt: the avalanche and snowball methods. The avalanche method entails targeting your highest-interest debts first, so you address the loans costing you most each month. The snowball method targets smallest debt totals first, so you can start parting ways with your lenders one by one.
The subreddit slightly prefers the avalanche approach, because it will save you money in interest payments. But they admit the snowball approach can be more psychologically satisfying. Seeing just one debt balance reach zero can be empowering, even if your larger loans still loom.
The snowball approach isn’t the only way to get rid of some lenders, however. Consolidation and refinancing offer opportunities to merge various accounts into a single streamlined loan. This could be particularly helpful if you’re facing numerous student loans simultaneously. You might even get a better interest rate and lower monthly payments. Our guides to consolidation and refinancing are great resources to help you consider these options.
In determining the tactics that will work best in reducing a particular debt, you may have questions about the terms of your loans and whether you’re actually responsible for repayment. r/personalfinance offers this page to guide you in obtaining this essential information.
Keep your other financial goals in mind
If the tips we’ve covered thus far haven’t already exhausted your paycheck, Redditors are quick to remind you that there are other things you should probably be saving for. Rather than shelling out extra cash on some frivolous expense in the present, prudent saving could really pay off in the long run. While this advice may seem premature to some readers, r/personalfinance users extol the virtues of saving for long-term goals, even while you’re young.
The housing thread offers plenty of conversations about comparing rental and mortgage options if saving for a home is on your radar. Another long-term investment worth considering is life insurance, a subject much discussed in the insurance space. There’s even a specific topic section dedicated to those who come by “windfall” cash, or large sums of unexpected money. Spoiler alert: Their suggestions won’t entail immediately buying a sports car.
Saving for children’s college funds is also a major suggestion, though the community hopes you’ll keep one caveat in mind. While it may seem a little selfish, they suggest prioritizing your retirement over your kids’ college funds. Their reasoning is simple: You and your children can take out college loans, but there’s no equivalent program to fund your retirement and pay for it later.
No matter how much extra cash you have on hand (if any), the subreddit will have at least one suggestion applicable to you. Because it’s constantly updating, however, we suggest saving links to threads you find particularly useful, so you don’t need to go searching through thousands of posts when you’d like to revisit them.
Get expert advice as well
By implementing these tips from millions of smart Redditors, you’ll be putting your lifelong financial journey on the right path. But when it comes to money matters, the crowd can’t answer every question. The basic suggestions above are essential, but they’re really just a starting point for your financial planning. Sometimes, a little clarity and expertise go a long way.