Here are 5 pieces of money advice I gave my younger sister

When my sister Gianna and I hang out, we usually don’t talk about money because we live on different floors in the same apartment.

We exchange stories about our friends and therapists, sympathize about the latest things we’re about to write about, and look up interesting memories.

But as Gianna, a filmmaker, got older, she came to me more often with financial questions. When money is a source of stress, everything else seems to feel insecure.

“I think the older you get in your 20s, the more freedom you get,” Gianna said. “But to exercise these freedoms and really enjoy them, you need a certain amount of financial security.”

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I consulted with financial advisors and experts to get the best answers on how Gianna should spend and save.

Here’s how they answered her five questions:

First, Carolyn McClanahan, certified financial planner and founder of Life Planning Partners in Jacksonville, Fla., recommends keeping at least a month’s worth of bills in your checking account at all times. McClanahan, who is also a member of CNBC’s Financial Advisors Council, said, “This means that if something happens to my paycheck, I don’t panic.

Beyond that, you should set aside at least three months of expenses that are easily available in your emergency fund, McClanahan said. You should aim to easily get your minute savings,” she added.

This cash should be kept in high-yield savings accounts, which offer higher-than-average returns, experts say. You can find online savings accounts that offer interest rates of 3% or moreFor example, a regular savings account has an interest rate of approximately 0.4%.

Make sure the savings account you choose is insured by the Federal Deposit Insurance Company. This means that deposits up to $250,000 are protected from loss.

Douglas Boneparth, a certified financial planner and founder of Bone Fide Wealth in New York City, recommends starting investing in designated tax-advantaged accounts for retirees.

First of all, starting to invest early for retirement gives you the ideal long timeframe to reap the benefits of compounding interest, experts say.

Retirement accounts such as 401(k) plans at work and Roth IRAs also offer tax benefits not available elsewhere, said Boneparth, another member of CNBC’s Financial Advisor Council. increase.

For example, traditional 401(k) contributions reduce your current taxable income, but after-tax contributions to the Roth IRA can be withdrawn tax-free when you retire.

Before moving on to other goals, McClanahan said you should make sure you’re saving 401(k)s at work, especially if your employer offers to match your contributions. says.If we meet Income qualificationit’s also wise to salt as much as you can each year in the Roth IRA (in 2023 the limit will be $6,500).

For other things you want to accomplish, like buying a house or going back to school, you should consider your timeline and decide whether to save or invest.

McClanahan said he usually doesn’t want to invest in something that has to be funded within five years. Money for these purposes should also be in a high-yield savings account instead.

If you’re on track for retirement or near-term goals and still have cash to invest, consider investing that cash in a low-cost index fund offered through a robo-advisor or brokerage firm. says the expert.

As long as you use it carefully, credit cards can help you build goodwill and unlock a wide range of perks. Ted RothmanSenior Analyst at Bankrate.com.

“I would vote to start small,” Rothman said. To that end, it’s a good idea to get a no-annual-fee credit card, put your recurring expenses on it, and always pay the balance in full each month. (Transporting a balance is incredibly expensive. high interest rate.)

According to Rothman, it’s easy to find cards that offer 2% cashback on purchases.

Beyond that, he said, he wants to think about where he will spend the most money. If most of your income goes to groceries, look for a card in the supermarket that gives him 6% back. Other cards have more generous cashback benefits on dining and travel.

“Know what you want out of your reward,” said Rothman.

To better understand your spending, experts recommend looking back at your purchases over the last few months.

McClanahan then divides spending into three main categories: needs, wants, and savings.

When looking at spending on “what you want,” she says, “see if that spending really adds value to your life. Too many people spend unconsciously.” I got

One useful rule of thumb is a 50/30/20 budget. This allocates 50% of your take home for essential spending, 30% for optional purchases, and 20% for savings and debt.

Automating your monthly savings will keep you on track, says McClanahan.

If someone asks you to do something you can’t afford, McClanahan recommends speaking as frankly as possible.

“Tell them you’re working on saving for other goals and suggest cheaper alternatives,” she said. may be urged to do so.”

You can also manage the plan yourself, says McClanahan.

“Don’t wait to be invited to an expensive place, invite to something that fits within your budget.”

Do you have any other questions, Gianna? You know where to contact me.