If you read Money's February cover story, you already know Tiffany Aliche. A former preschool teacher who landed deep in debt during the Great Recession, she turned it all around by relearning financial basics — and, in the process, becoming The Budgetnista.
Her latest book encourages you to master those lessons, too. Get Good with Money, which comes out Tuesday, walks readers through 10 steps to achieving financial wholeness. Touching on everything from budgeting to estate planning, the book is what Aliche calls "the ultimate adulting guide to your finances," with exercises, advice, anecdotes and more.
"I don’t know if it’s going to sell a bajillion copies, but I do know that those who read it will seriously be helped," she told Money earlier this year. "I’m just really proud of that: creating something that I know is going to create transformation in someone because they have that step-by-step guidance, written in a way that is not overwhelming."
Read on for an excerpt.
Save Like a Squirrel
Savings is more than just an incredible fuel for your future. It’s also a cushion that can catch you if you fall on tough times. After all, life is unpredictable—you might get laid off or face a health emergency that puts you out of work. But if you have some money saved to cover your basic expenses, you will give yourself that time to recover, heal, repair, rework your situation, and get back into your groove.
To get good at saving, you’ve got to move from the habit of saving to spend money to saving to make money. Being a good saver means you don’t spend all that you save unless it’s an emergency and you put the savings somewhere intentionally.
The two primary purposes of creating and maintaining savings are to see you through tough times and to give you the ability to invest.
Be Like the Squirrel
In New Jersey, where I live, we get hit with the best and worst weather of four seasons. But even with extreme highs and lows in temperature, you’ll almost never see a sickly squirrel. They not only survive, they thrive! Why? Because they adapt their behavior to seasonal change.
During the seasons when acorns are in abundance, those squirrels don’t mess around—they get to work, gathering and stashing acorns like nobody’s business. When winter arrives and acorn gathering isn’t possible, they don’t stand up, hands on hips, and say, “Wait, what?! It’s winter again?” They knew it was coming, and they prepared for it.
Human behavior is pretty much the opposite of squirrel behavior. We like to splurge and spend when times are good. What’s a little insane is that when we’re enjoying these good times, we tend to think they are going to last forever. Yet when the good times fade, we think that the bad times are here to stay. It’s important to acknowledge that life—like the seasons—tends to be cyclical, and, importantly, just as often driven by forces beyond our control.
We need to be like the squirrel and work hard and save big during plentiful times. Get lean (without over sacrificing) and stockpile savings when we can. We need to mimic squirrel behavior because a financial winter comes for everyone. Maybe in the form of job loss or a sudden need for a large sum of money to cover something medical.
If you haven’t prepared for this “winter,” and you have to go out searching and scrambling for money in the middle of it, you might be surprised how hard it is to find. Just like the (very rare) squirrel who has to go out into the snow to look for a nut, you will have to work harder to find what you need. This will be especially true if it’s a markedly long, cold winter, that is, a recession. In this case, you’ll not only be working harder for less, you’ll also be competing with everyone else who’s out there scrambling for nuts.
Learning to save for all the seasons takes away the panic and fear you will feel if the worst thing—the worst financial storm—happens; saving is savvy preparation. What you make right now is never just for right now.
Identify and Calculate Your Savings Goals
It’s important to have specific savings goals. Otherwise, you risk not saving enough or not saving for the right reasons. There are two saving categories:
- Emergency savings
- Goal savings
Everyone should have an emergency fund. It’s your backup plan in case anything happens to your income or in case a new unexpected cost is introduced into your life, like a medical bill. I recommend starting with working toward a minimum of three months of expenses saved for emergencies. For this goal, you’ll need to identify how much your bare-bones-no-frills life would cost you each month and multiply that number by three. Voilà! That’s your initial, emergency savings goal.
Getting to your needed total might take a couple of years even. But making this savings a part of your overall savings plan is the only way you’re ever going to get to that total in the bank.
Now is the time to calculate what you need for emergencies and also determine the specific items or experiences you want to have in the future.
First, tackle the emergency savings fund. Here’s an example using my friend Monica’s budget. Monica’s all-inclusive budget has her spending about $5,000/month. Her bare minimum budget is more like $3,500. Multiplying her baseline budgetary needs ($3,500) times her desire to have three months saved up means that Monica needs to have $10,500 in her emergency savings fund.
Monica feels that it’s realistic she could get there in about three years. That’s three years to reach her goal of having $10,500 squirreled away for a financial storm.
So: $10,500 ÷ 36 months (three years) = $291.66 a month.
In other words, Monica needs to save about $290 per month for 36 months to give herself a minimum savings cushion of three months’ essential expenses.
Now let’s look at your goal savings.
What do you want to save for? Really being thoughtful about this step is going to keep you focused and less prone to impulse spending.
Let’s go back to Monica. She has her sights set on saving for her island honeymoon. She’s splitting the cost with her fiancé so she’s imagining a need for about $2,000 to cover her share. The wedding is in eighteen months, though, so she’s got that many months to amass that savings.
How much does Monica need to put in her goal savings account to be ready to hit the beach in eighteen months? $2,000 divided by 18 months = $111.11. Let’s round down again: She needs to put away $110 a month for her honeymoon. Do this calculation for yourself. And again, add this amount to your overall budget.
Can you feel the weight being lifted? All because you took the time, created a plan, and prepared for life’s inevitable dip/downturn.
Adapted from GET GOOD WITH MONEY copyright © 2021 by Tiffany Aliche. Used by permission of Rodale Books, an imprint of Random House, a division of Penguin Random House LLC, New York. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.