The Best Way to Manage Your Money Isn’t What You’ve Been Told

Financial advice should come with an expiry date. Because outdated guidance is like financial sabotage, according to money experts.

As written about in the Wall Street Journal last year, much of the financial advice young people have been given might actually be the opposite of what they’re supposed to be doing with their money. Young people are delaying or foregoing life milestones like getting married, buying a home, and having kids, so advice that was fine for boomers doesn’t always make sense for the economy that millennials and Gen Z live in.

Personal finance expert Robin Taub said precarious employment and changing values are why the old financial playbook needs a refresh. “We have a sharing and a gig economy now—meaning there are a lot of people that don’t have full-time employment. A lot of freelancers and solopreneurs work for an app like Lyft or Foodora. There’s also been a shift in terms of people not feeling like they have to own things like a car or a house,” she said.

Here are seven pieces of money advice that your parents probably didn’t give you.

1) Set up saving so you don’t have to think about it

The old 50/30/20 budgeting advice suggested allotting half of what you make to essentials like rent and food, 30 percent for fun, and 20 percent savings for “a rainy day.” U.S. presidential candidate Elizabeth Warren famously used this formula in her 2006 book All Your Worth: The Ultimate Lifetime Plan, which she co-authored with her daughter. But nowadays, aiming to save 10 percent of your income is probably more realistic. And according to Taub, how you save that is really important.

Waiting until the end of the month to try to cobble together 10 percent to set aside as savings is the most common approach but not the best one. That’s because it’s really easy to forget. Or your math might be off. Or you might be tempted to let it slide just this once. Bottom line, you don’t end up with that 10 percent consistently.

To avoid this, and ensure that you stick to your budget, take that 10 percent off every time money goes into your bank account and transfer it into a savings or investment account. According to Taub, if you “take it off the top” right away, it forces you to learn how to live with less.

If you can’t figure this out on your own, there are apps that can help you do this automatically. They range in price from free apps like Mint, while others such as Mylo charge a few dollars a month.

2) Use notifications and alerts

If you’re not using cash, it’s easy to overspend or lose track of how much you’re buying because handing over your debit or credit card is so easy. Taub suggests setting up notifications so that every purchase you make sends a message from your bank to your phone.

“It’s easy to fritter away money and waste it on your ‘latte factor’—all that little spending that adds up. But if you get an alert and a buzz, it’s Pavlovian. It’s a reminder that you spent money,” said Taub.

Alerts to remind you about upcoming bills are handy too, and according to Taub are just as quick to set up through your financial institution.

3) Track spending by category

How much money you spend isn’t the only thing to keep an eye on—what you’re spending it on matters too. Taub says the key to this is tracking your money by category. This allows you to make sure that you’re sticking to your financial priorities.

“If travel is really important but I’m spending a lot of money on takeout food—that’s a wake-up call,” she said. “It might mean you spend time on the weekend cooking for the upcoming week or finding clever ways to stretch your food dollars.”

Decide what you want to save up for, or divert your money towards, whether that’s shows, travel, going out for dinner, or some long-term goal like a down payment for your own place (if you don’t think that will ever happen for you, you should check out number six on this list). Are you prioritizing your habits accordingly?

Most financial institutions have tools that you can use to group your spending into different “buckets.” According to Taub, this is something that’s already set up when you bank online, although most people don’t take full advantage of it. If you’re comfortable attaching your banking info to a third party, there are apps such as Mint that help you keep track of where your money goes.

4) Gig workers need a different system to manage inconsistent income

If you’re working a bunch of side hustles, or contract-to-contract, budgeting means guessing how much you’ll be making over the next few months—and it may come at irregular intervals. This changes everything when it comes to traditional budgeting and saving approaches.

According to financial coach Beau Humphreys, who hosts The Personal Finance Show podcast, being part of the gig economy makes managing your money way more complicated. He should know; he’s a part-time Uber driver. “If you have to put your rent on your credit card because you didn’t make enough this month, but you will make enough next month, that’s a terrible way to live,” he said.

Managing lumpy income—where you’re making a lot one month and almost nothing the next—means resisting the temptation to spend a lot when money is pouring in. “The key is, when you have the good times, don’t live any differently than when money isn’t coming in. Buy the 99-cent carrots instead of the $3 peppers,” he said.

Another thing that gig workers need to pay attention to is putting aside money for income tax. Humphreys recommends saving 25 to 30 percent of what you make to use at tax time. You can use this SimpleTax calculator, along with your best guesstimate of how much you’ll make in a year, to help you figure out what your taxes might be.

Being precariously employed can also mean that you’re faced with a major conundrum: you need savings more than a salaried worker in case you’re not making money between gigs, or your gigs dry up, but saving is tougher. A study by the Canadian Centre for Policy Alternatives, a think tank, shows that low-income and precariously-employed workers are unfairly penalized under the current Employment Insurance system and don’t always qualify for support when they’re unemployed.

Keeping this in mind, Humphreys says having an emergency fund, or “mercy fund” to keep you afloat for a few months is really important. This sounds like a lot to ask, especially if you’re barely scraping by as it is. But sticking to a budget and putting as much money as you can aside when your paychecks comes in is key. It also means that if you dip into the mercy fund, you need to switch into saving mode again to top it back up when you can. It’s not a one-time thing.

5) Don’t overspend on education

Do you actually need that expensive piece of paper and have you explored alternatives to a cookie-cutter undergrad degree? Continuing education classes, specialized college courses, and entrepreneurship are all worth considering. This goes double for second university degrees in fields that won’t pay much after you’ve graduated.

Humphreys says shelling out for a university education, when you don’t really need one, is a big waste. If you’re going to be a doctor—you don’t have much choice. But if you’re taking philosophy, hoping to “figure things out,” maybe reconsider, and save your money. Sorry, Voltaire.

“Paying $40,000 for school isn’t universally applicable and I think people don’t think about it enough,” he said. “The trades often get overlooked. There’s nothing wrong with being a plumber or elevator repairman. There’s an apprenticeship and it’s long, but at least you’re getting paid.”

6) Don’t be house-poor. Rent where you live and save to buy somewhere cheaper

You probably already know that the old narrative of getting married, buying your first house, and popping out a kid or two before you hit 30 isn’t possible for most people. Just getting by and making enough to cover rent and food is hard enough. But the old advice to save up to buy the place you’re going to live in is worth re-thinking especially if home prices are too high in the city you want to live in. Check out more affordable towns—even if you don’t want to move there. According to Taub, you can buy in a cheaper city and rent out your place and keep living (and renting) in the big city.

Considering it takes 21 years for a full-time worker, making an average millennial salary of nearly $47,000 annually to save up a 20 percent down payment for an average-priced home in Toronto—it could be a lifetime. Make that 29 years if you’re looking to buy a typical place in Vancouver.

For people in major urban centres, Taub suggests renting where you live and work, while saving up to buy a place somewhere within driving distance but where property is less expensive. “Some people would like to own and get an equity stake in the real estate market but can’t afford to buy where they live and work. A strategy to consider is to buy a place in an outlying city or smaller city or town and rent that out. That way, you’re getting a foot in the market,” she said.

The home equity she refers to is the portion of the home that belongs to you, based on what you’ve paid for (as opposed to fees and interest). Your equity increases as you pay down your mortgage as well as if the value of your home goes up. Over decades, real estate is a good investment, but getting your foot in the market can elude you for a lifetime if you’re too focused on the priciest markets. This strategy allows you to own sooner.

“You continue to rent in the city where you work and eventually, you build up enough equity that you can decide to refinance that property, buy another investment property, or use it to buy a place that is closer to the city. Or maybe you’ll decide you want to live in that place. You have some options and you’ve built some wealth,” she said.

7) Make your savings work for you while you figure out your next move

If becoming a landlord somewhere while you rent somewhere else sounds too stressful or complicated, you have time to figure things out. But you can put your money to work for you while you decide on your next big financial goal, and you can make this happen automatically. If you think that savings should only sit in a savings account until you need it, that’s an old-fashioned way to think about your money.

Melissa Leong is a financial writer and author of Happy Go Money: Spend Smart, Save Right and Enjoy Life. She says first-time homebuyers in major cities face a monumental feat. “Who has $160,000 as a 20 percent down payment for an average $800,000 home in Toronto, especially when you’re starting out in your career, possibly with student debt?” she said. Instead, Leong suggests funnelling your savings into investment accounts.

The term “investing” probably sounds like something you can’t afford—not when you have other kinds of debt to think about. If you have high-interest debt, that should be your priority.

But if you’re putting money aside as savings—even if it’s a small amount—Leong suggests setting up an account with a robo-advisor, which is an online service that invests your money based on your goals, timeline, and risk tolerance. WealthSimple offers this service, but some banks including Tangerine have transfer options to investment accounts with index mutual funds, which have lower fees than regular managed mutual funds.

According to Leong, setting up this kind of automated saving and investing can be done in minutes. “If you’re not sure how to set up that account, you can Google it, or watch a YouTube tutorial without getting up from the couch,” she said. “The information at your fingertips is incredible.” “Even if you are not ready to be the king or queen of your own castle, you can still build your empire by investing your savings,” said Leong.

Follow Anne Gaviola on Twitter.