Being successful with money only takes 5 steps - but you have to keep doing them
"There are really only five things you have to do in order to have a successful life," financial editor of NBC's "Today Show" Jean Chatzky told Business Insider in a Facebook Live interview, "but you have to do them over and over again."
Chatzky, who is also a senior editor at The Balance and the author of several books including, most recently "Age Proof," with Michael F. Roizen, outlined those five steps for Business Insider:
1. 'You have to make a decent living'
"You have to have money coming in from somewhere," said Chatzky. "'Decent' doesn't mean excessive, by the way. There's a lot of research that shows once you are able to live comfortably, more than that won't make you more happy."
For many people, earning a decent living is easier said than done, but not everyone needs to have seven separate income streams. To manage your money, to stay out of debt, and to build wealth, you need to have something coming in, but it doesn't have to be extravagant.
Even among higher earners, research like the oft-cited study out of Princeton in 2010 found after about $75,000 a year for a household (later adjusted to about $83,000 for inflation) people's happiness leveled off.
2. You have to live within your means
"You have to spend less than you make on a consistent basis," said Chatzky. "A lot of people have trouble there."
One of the best ways to make sure you're doing this is to start tracking your spending - simply watching where your money goes for a few months, before making any changes to how much or where you spend. You can do it automatically through an app like Mint or You Need a Budget, or you can get more granular with a spreadsheet.
3. You have to save
"You have to take what you're not spending and put it away, first in savings and then in investments so it can work just as hard for you as you are working for yourself," Chatzky said.
Savings take many forms. For instance:
- An emergency fund - about six months' worth of living expenses stored somewhere liquid (like a high-yield online savings account or money market account)
- Retirement savings - an employer-sponsored 401(k) and/or a personal Roth or Traditional IRA, all of which are tax-advantaged investment accounts created specifically to save money for retirement
- College savings - You can establish a state-sponsored 529 plan, which is also tax-advantaged and invested, as soon as your child is born.
- General investments - Despite hot stocks and companies making headlines, investing legends like Warren Buffett and Jack Bogle generally recommend a much simpler approach: putting money in low-fee index funds, and leaving it alone for decades at a time.
4. You have to think ahead
"You have to protect this whole financial world that you're building with both an estate plan like a basic will and other documents as well as the proper insurance coverage so that no disaster can take it all away from you," Chatzky said.
If you're curious, here's the insurance you should have at every age.
5. You have to give back
"You have to give back in some way that is meaningful to you, because that gives the human psyche a really great boost," Chatzky said.
Remember that this doesn't have to be financially - your time is valuable, too.