'ZDNET Recommends': What exactly does it mean?
ZDNET's recommendations are based on many hours of testing, research, and comparison shopping. We gather data from the best available sources, including vendor and retailer listings as well as other relevant and independent reviews sites. And we pore over customer reviews to find out what matters to real people who already own and use the products and services we’re assessing.
When you click through from our site to a retailer and buy a product or service, we may earn affiliate commissions. This helps support our work, but does not affect what we cover or how, and it does not affect the price you pay. Neither ZDNET nor the author are compensated for these independent reviews. Indeed, we follow strict guidelines that ensure our editorial content is never influenced by advertisers.
ZDNET's editorial team writes on behalf of you, our reader. Our goal is to deliver the most accurate information and the most knowledgeable advice possible in order to help you make smarter buying decisions on tech gear and a wide array of products and services. Our editors thoroughly review and fact-check every article to ensure that our content meets the highest standards. If we have made an error or published misleading information, we will correct or clarify the article. If you see inaccuracies in our content, please report the mistake via this form.
A few years ago, I had lunch with an individual who was considering hiring me to give a multi-hour seminar at a business convention on personal finance. This person knew me from the local community, and he felt that I might be the right person.
Out of the blue, he asked me to give him a five-minute version of what I would present to the group during the lunch. I thought for a minute, pulled a pen out of my pocket, and asked him for five business cards. I summarized everything I know about personal finance in a pocket-friendly presentation in those next five minutes.
Here's what I wrote (with some extensive explanations):
In the end, this is the fundamental rule of personal finance: spend less than you earn. It's the one point that comes up time and time again in almost every personal finance book. Why? Because it's true.
There are two avenues to achieving this goal: spending less and earning more. By working on either (or both) of these areas, you can increase the gap between those two numbers -- and that gap is your ticket to freedom. The harder you work on either spending less or earning more, the bigger that gap will become and the quicker that train to your dreams will arrive at the station.
So how does one earn more? Many people will argue that there is no universal way for people to earn more money, and they're right: some people are born entrepreneurs, others function much better in an office environment. Some people are endlessly creative; others are masters at completing long lists of tasks.
Once you dig past that, though, there are some common things that anyone can do to earn more money regardless of their financial state.
This doesn't mean dropping out and going back to school. It merely means to keep learning new things. If something interests you, read a book about it. Take evening classes to get certification in a certain area or get a masters' degree. No matter what you're doing, there's some way you can learn more and improve yourself.
Always be on the lookout for ways to have money rolling into your pocket from a lot of different places. Maybe you're a good writer and can sell a short story or an online ebook. Maybe you've got a little piece of land somewhere that you can lease to a farmer or a developer. Maybe you spend your free time managing a flower bed in the park -- why not put a little wooden freewill donation box out there for people to drop a coin in? Maybe you have some extra cash lying around with which you can buy a long-term Treasury note that will keep issuing you a check every six months. Having more income streams merely means that losing one of them (like your job) is less devastating in your life, and it also means your overall income, for now, will go up.
Instead of burning a few hours in front of the TV each evening, how about investing at least part of that time into starting a side business? You can try starting a blog with a few ads on it, or maybe you're good with woodworking and can make deck furniture. Maybe you're good at baking bread and can take loaves to the farmer's market, or maybe you deeply enjoy gardening and can sell vegetables. There are lots of possibilities out there for starting a business that will supplement your current income and perhaps eventually grow into your main income.
Whenever the opportunity presents itself, gravitate towards the things that really excite you because passion is what will make you successful. For me, my passion is writing; for others, it could be anything -- maybe it's leading a team, or perhaps it's writing beautiful computer code. Whatever really excites you and makes you want to do more and more and more and better and better and better, that's what you need to move towards at all times.
You never know when a relationship you've forged in your past might come in handy later on, even the ones you completely don't expect. Thus, even if you feel wronged in a situation or want "revenge" on some people -- or even if you just feel an urge to spread negative gossip -- resist it. As you get older, you'll find yourself time and time again bumping into people that you forged relationships with earlier on. If you burned those bridges, you'd find that eventually, you'll have burnt that very bridge that you need to cross to get ahead.
My advice? Never spread a negative word about anyone because it never helps.
When you do build a bridge with someone, don't let it get old and worn out -- spend the time to keep in touch with that person. Shoot them an email or a phone call every once in a while just to see what they're up to. When it's clear they need help, and you can easily provide it, always provide it. I found the book Never Eat Alone to be particularly powerful in this regard. I'm rather introverted, and it's often a challenge for me to initiate and then keep the communication going with someone; this book provided tons of tips on how (and why) to keep in contact with people.
For a lot of people, frugality is a nine-letter word for cheap. They think of people doing stuff like buying cartloads of generic products, using forty coupons in the checkout aisle, wearing patched clothing, driving a rusted-out old vehicle, and other such things that it's easy to look down your nose at.
Here's a secret, something that I've witnessed several times in my own life, and read about many more: those frugal people that you look down your nose at often have a mountain of cash in the bank (not always, of course, but more often than you think). They're not drowning in a mortgage; they're not making payments on a five-figure credit card debt. They're not working to death on the weekends or drowning an ulcer in Pepto-Bismol. They're living their life according to their own rules.
The best part is that we can all apply some of those same rules in our own life. Here's what you can do to start reducing that spending.
Every time you spend money, you make a decision. You decide that whatever you're giving that dollar for is worth it, and thus you make the exchange. The real key to spending less is to raise that definition of what a dollar is worth. You know those times when you buy something, but you realize you don't really need it, and you're also not convinced that it's a very good deal? Make the choice not to buy it or buy a cheap version and see how much you actually use it. Don't be afraid to shop around a bit.
Food is a great example of this. Quite often, people will eat out at places like Applebee's and drop $20 or $30 on a meal that they could have made at home for $3. "But it saves time and is convenient," you say? Just for fun, try making an equivalent meal at home sometime. You might be surprised to find out how easy it is and how much you'll save.
Most people have some sort of routine in their day where they buy a morning latte or a bagel, or they drink six cans of soda, or they eat out at the same place each day for lunch. What these routines add up to is a lot of money. Spending $5 every day in a workweek adds up to $1,300 over a year – that's a mortgage payment for a lot of people. Spend some time looking at the stuff you do every day, especially the ones that require you to spend money, and ask yourself if they're really necessary or could be replaced.
Every time you go to make any purchase, even when you pay a bill, stop for 10 seconds and ask yourself if this is really something you want to spend your money on. Do you really need this item? Could you reduce that electricity bill by putting in a lot of CFLs? This one simple technique will often point you in the direction of spending less money.
Most of the time, when you cut a bit of spending from your life, you'll find that you never miss it. However, there are times when you find yourself really regretting it. If that's the case, then it's probably a worthwhile expense for you. Saving money doesn't have to equate to misery; it just means that you cut down on the unnecessary.
That, of course, doesn't mean that you should justify every purchase with a basic "I want it, and I have money in my account." That shouldn't ever be enough to motivate a purchase. I find that using a visual reminder in my wallet of what I'm financially working towards does a great job of keeping my mind on the big picture and helping me filter out what's really needed and what's just a fleeting desire.
Whenever you increase your income or decrease your spending, you'll find yourself with more cash at the end of the month. That cash is your ticket to financial freedom, and the more you can get each month, the better off you are. The trick, though, is not to spend it but to do things that will build a stable future for you. Here's the game plan.
Anything with an interest rate over 9% needs to go as soon as possible. Use the extra money to make double or triple payments on these debts, focusing first on the one with the highest interest rate. When that one's gone, keep going with each successively lower interest rate debt. This is akin to Dave Ramsey's popular "debt snowball" technique.
Also: The best credit cards for good credit: Reap the rewards
An emergency fund is an amount of money you keep in a savings account that's intended to be used in the event of a major crisis, such as a job loss, a medical emergency, major car damage, and so on. I usually suggest to people that they measure their emergency fund in terms of months' worth of living expenses -- you should have a month and a half worth of living expenses for each person you claim as a dependent. So, for me in a house with two children and my wife, I have a six-month emergency fund.
By this, I mean you should go to one of those retirement meetings at work, ask exactly how much you should be putting away to ensure that your living expenses are well-covered in retirement, and put that much away. This varies a lot depending on how much you have in it right now, how much your employer matches, and so on, so you should talk to your retirement planner at work about the specifics.
College savings are next. If you have kids, set up a 529 college savings plan for them and start automatically putting a certain amount into this account each month. The plan I use for my own children is College Savings Iowa, which Vanguard manages -- I currently put in $100 a month for each child.
If all of these are covered, and you still have cash leftover (which you will, given some time), the next step is to pay off all of your debts. Get rid of your car loans, your student loans, and your mortgage. This is actually the step I'm focusing on right now, as I have already taken care of steps one through four.
You might also want to start investing at this point. My recommendation is to buy low-cost broad-based index funds because they don't have many fees and grow very nicely over long periods of time.
Most people see the goal of all of this as being rich. That's why you see so many books about millionaires on bookstore shelves – being a millionaire is something many of us aspire to, right?
Here's the secret: it's not about being rich. Having a big net worth is just an indicator of what this whole process is really about.
It's all about freedom. Freedom from debt. Freedom from supervisors telling us what to do. Freedom to spend the time to do things right. Freedom to try out new things and follow our interests. Freedom to sleep until eleven one day, then stay up until two in the morning working on what we're passionate about.
That's what most people want -- I know that's certainly what I want. Having a big bank account just means that I'm not beholden to others. I can follow my passions and dreams wherever they take me. If my job is not satisfying to me, I'm no longer tied to that paycheck -- I can just get up and walk away. I can do whatever makes me happy and avoid most of what makes me sad, without regrets or worries.
It's a lot of hard work to climb that mountain, but the air up there is the sweetest thing that there is.
[This article was first published on The Simple Dollar in 2020. It was updated in February, 2022.]