In today’s episode, we explore simple yet effective habits to enhance your financial wellness. We’ll discuss practical strategies for building an emergency fund, boosting your savings rate, and managing your budget without the stress of meticulous tracking. We are also excited to share insights from our special guest, Paula Pant, the founder of Afford Anything, who will share her expertise and personal journey in the world of personal finance. 

In this episode, we’ll cover:

• Building a sustainable emergency fund strategy based on separating true emergencies from predictable expenses.
• The 1% challenge where you gradually increase your savings rate by 1% each month without feeling overwhelmed.
• How to diversify your income with side hustles and gig work to generate immediate income, with a long-term focus on developing scalable businesses for sustained financial growth.
• Using the anti-budget method to prioritize saving a fixed amount first, allowing for flexible spending and making budgeting more accessible.

Listen below or read the transcript that follows. 

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Eric Rosenberg:

This is a quick reminder that today’s episode is intended for education and entertainment purposes only and should not be considered legal or financial advice.

Hello my friends. Welcome back to The Good Cents by Payactiv podcast. As always, I am your host, Eric Rosenberg, and today I’m excited to bring a wonderful guest who has a wealth of knowledge about all things related to wealth. That is Paula Pant. She’s the founder of Afford Anything, and I love the motto that she puts behind her site. And the idea is that you might not be able to afford everything, but if you focus on your budgeting and money in the right way, you can afford anything. And if you are new to managing your personal finances, Paula is a great place to start. She has a ton of resources and has a lot of personal experience going from working for someone else to working for herself and building an income and money management system that works well for a wide number of people. So let’s get started in this fun conversation with Paula Pant.

All right, ladies and gentlemen, I am so excited to be here with my good friend Paula Pant, and she is one of my favorite personal finance experts. Welcome to the show.

Paula Pant:

Oh, thank you for having me on.

Eric Rosenberg:

So before we get started, can you share a little bit about how you got into a personal finance, blogging and podcasting and all that other awesome stuff you do?

Paula Pant:

Sure, absolutely. I was a newspaper reporter for a few years, and when I left the paper and decided to start to working for myself, I knew that I needed to specialize in a topic. And someone gave me the advice to write about whatever I enjoyed reading the most. I’ve always loved reading about personal finance. I initially became a full-time personal finance freelance writer. I wrote for About.com. I was their guide to budgeting and personal finance. I wrote for AOL Daily Finance. I wrote for a variety of websites that were owned by certified financial planners and various other firms. But then in parallel with that, I was also blogging about personal finance and that started to grow an audience. And after five years of doing that, I had grown enough of an audience that I could actually give up all of the freelancing that I was doing and full-time go into building out what started as a blog and is now a podcast and a community called Afford Anything. I also, at some point during that journey, went back to school. I went to Columbia University where I studied business and economic reporting. So I got a master’s in economic reporting and was also a Knight-Bagehot Fellow, which is a fellowship in business and economics journalism.

Eric Rosenberg:

That’s super cool. So you have that perfect NPR voice and you have the education to go with it.

Paula Pant:

Oh, thank you. Thank you.

Eric Rosenberg:

Let’s dive into our topic for today. We’re talking about easy habits to help improve our financial wellness. I know for some people we’re not going to sit down and budget every single penny. That’s just not going to work for everybody. But there are things that are easy enough that we can do to get started. And the first habit that I wanted to chat about is building an emergency fund. I think emergency funds are so important. They can help you avoid those super cash crunch moments. They can help you break out of that paycheck to paycheck cycle, so you know, have enough cash on hand to cover the rent, to cover the groceries, and maybe even a car repair or a unexpected trip to the hospital when your kid trips and breaks their leg or something. Hopefully that doesn’t happen, but you never know. Life happens. So what advice would you have for somebody who’s trying to start an emergency fund for the first time?

Paula Pant:

So I would say a few things. Number one, there’s a distinction between an emergency versus an expense that you know will happen but you don’t know when. For example, let’s say that you own a car. I don’t, but most people do. If you have a car, you know that at some point your car is going to need repairs. You don’t know when, might be next week, it might be next month. It might not be for another three or four or five years, but you know that at some point, something is going to break on that car and it’s going to be an expensive fix. And so what I would recommend doing is don’t think of that as something that comes out of your emergency fund. Instead, put aside a little bit of money, and it can be $10 a month, put $10 a month into a car repair fund, and that’s money that you’re setting aside specifically for car repairs, because you know that bill is coming. You don’t know when, but it is.

Same thing, whatever your health insurance deductible is, set aside some money that’s specifically for that because you know that at some point you’re going to have to make a copay, you’re going to have to make a deductible. You don’t know when, but you know that that is happening down the line. If your utility bills tend to spike, depending on where you live, either the summer or the winter, there are some people who they live in cold climates. Their bills really spike during the winter. Other people live in hot climates. Their bills really spike during the summer. You know that that’s coming. And actually in this case, you do know when and so have some money, maybe you have a normal utilities budget, but you know that during the winter or summer months, your bill is going to be higher than your typical utilities budget. Have a little extra reserve set aside for your most expensive utilities months.

And so by virtue of breaking those things out, number one, it’s increased motivation, because it gives you this very concrete thing to save for. This is money that I’m putting aside for the car, because I know it’s going to need to repair. And number two, it also allows you to then keep your emergency fund sequestered for something that is truly, truly unexpected.

Eric Rosenberg:

That’s a good idea. I like how you approach that, thinking about the expected emergencies and making them feel like less of a financial emergency. And I had that car repair last year. Here in California, we have to get a smog check every year. And I took my car in and the result was I had to go spend about $1,000 to get my car to pass a smog check. There were a couple issues with it, so that was something I knew eventually I’d have to fix my car and that was the day. So you never know when those are going to come.

Paula Pant:

Exactly.

Eric Rosenberg:

Now, I wanted to ask you for one, what do you think is another important habit that people can follow to make their finances better?

Paula Pant:

Sure. Well, so there’s one thing. A lot of times people will say to me that they just can’t save, that there’s no more room in the budget to save. And so what I encourage people to do is something that I call the 1% challenge. And that is every time you get paid, take whatever it is that your current savings rate is, add an additional 1% to that. So 1% is $10 for every $1,000 that you make. So if your paycheck is for $2,000, 1% is 20 bucks. If your paycheck is $3,000, 1% is 30 bucks. Whatever it is that you make and whatever it is that your current savings rate is. At your next paycheck, increase that savings rate by an extra 1%, do that for a month. And then after a month, then start increasing your paychecks by another 1% on top of that and then keep going and do this consistently for the next six to 12 months. And by virtue of doing so, you increase your savings rate by an extra six to 12%.

Eric Rosenberg:

That’s great. Actually, I used to do something kind of similar to that with my 401k plan at work. I was lucky to have matching for my employer if I put money away from my retirement for my future, which is a good idea for everybody to do. But there was a tool built in where every year I could increase my savings rate by a certain percent. So I started by doing just the employer match because I didn’t want to leave any what I’d call free money on the table. But then every year from there on, I kept just increasing it a little bit, increasing it a little bit. And what’s nice about increasing by just 1% is a lot of the time in finance, we sometimes call this paying yourself first, the money is gone before it’s in your checking account to go spend on something else. And if it’s a small part of your paycheck, you might not miss it as your finances stabilize. If you have that emergency fund, if you’re living within your means, it’s a lot easier to save 1% than a lot of people realize.

Paula Pant:

And because you’re starting so small, I mean 1% is for every $1,000 that you make, it’s 10 bucks. So can you find 10 bucks per thousand? I think most people when pressed are able to find 10 bucks.

Eric Rosenberg:

And maybe that’s a couple less visits to the coffee shop at a month, maybe that’s one less meal that you eat out, that you cook and eat at home instead. There’s a lot of different ways we could come up with $10. Everyone knows hopefully you know where your money’s going so you can look through your spending habits and find a place to dig up that $10 or $20.

Paula Pant:

Well, and it can also, conversely, you could do something that earns you an extra 10 bucks per week, right?

Eric Rosenberg:

Yeah.

Paula Pant:

And oftentimes if you’re doing that, you’re not going to literally make only $10 this week. Oftentimes when you’re doing that, let’s say that your neighbor’s dog needs to be walked, your neighbor is never home from work in time to walk their dog. So you offer to walk their dog after work every day for, I don’t know, 25 bucks a day, but you’re doing it five days a week. Now all of a sudden you’ve got the school side hustle. So oftentimes in trying to boost your income just by 1%, typically what happens is it goes to the income boosting side of the equation. It’s rare that that happens in 1% increments. But if you start by looking for a 1% increment, you end up boosting it by much, much greater percentages.

Eric Rosenberg:

I love a good side hustle. I started my career path as a side hustle. So I’m always a fan of ideas and ways to make a little bit more money. And there’s so many ways out there. I mean, it could be even being an Uber driver for one day a week. There’s just so many things you can do to make an extra 10, 20, 30, $100 if you put your mind to it and take a little time. So yeah, that’s great. I love it. It’s even better than slashing your budget. Slashing your budget’s okay, but making more is even better.

Paula Pant:

Right, exactly. Exactly. On the subject of making more, there’s two different ways to make more that I want to encourage people to think about. One is, there’s gig work. So gig work is anything where the platform already exists and you just plug yourself into it. So something like driving for UberEats or DoorDash, those types of things, that’s gig work. And what’s nice about it is that you don’t have to hustle for the business from scratch. There already exists a matching platform that matches the service providers, that’s you, to customers. And so you can start earning money on day one because you don’t have to actually go out there and look for customers yourself. That’s fine. I think temporarily it’s fine as a stepping stone if you are a student or if you just need something quick for the holidays or whatever or something quick just to pay an unexpectedly large bill. I think that’s fine for the short term.

But in the long term, if you can develop a side hustle in which you get away from gig work by virtue of finding your own customer base, finding your own clients, the example that I gave of you figured out that your neighbor needs some dog walking, that comes from just talking to people and seeing what are your problems and how can I solve them? And when you do that, you start to build something that is typically much more lucrative because you’re not competing against a bunch of other people for the low bid situation. And you start getting more and more word of mouth referrals, which then builds your business.

Eric Rosenberg:

Yeah, I love that. It is a really important thing to think about. Some people like to think of it as hours for dollars, and some people like to think of it as building a business, building your own brand. There’s a few different ways to approach the idea of earning more. That’s a great process to think through.

Paula Pant:

Right. Right. And then the final thing to think through after that is how do you make it scalable? Because what’s nice about being a service provider is that there’s a low cost of capital. You don’t need to build a product in order to get started. You just start by offering a service. And so you’re trading your time and your skillset and your expertise for money. But then once you’ve done that and once you’ve built a bit of a reputation for yourself, then the next question becomes, all right, how do I make this scalable? How do I develop some type of a product that relates to this that can then scale so that it’s not an hour for dollar trade anymore?

Eric Rosenberg:

Yeah, that’s a really great way to build a business and maybe even break out from working for someone else, become self-employed.

All right, our next topic, and we’ve talked about budgeting a few times this conversation so far. What would be your third important habit you would suggest people follow to improve their financial wellness?

Paula Pant:

Well, so there’s a concept that I’ve coined called the anti-budget. And the anti-budget is for people who have a hard time adhering to a very meticulous line item budget. The traditional way that budgeting is taught is that you should break out exactly how much money you’re spending on food versus clothing versus entertainment. The traditional way that budgeting is taught is incredibly meticulous when it comes to tracking where all of your money is going. And I think behaviorally, a lot of people can’t stick with that for the longterm. It’s like the calorie counting of personal finance. It is really difficult to consistently weigh and measure every item of food that goes in your mouth. And so you can’t really accurately calorie count for years. You could do it for weeks, you could do it for months. I don’t know anyone who has really meticulously weighed and measured every piece of food that they’ve eaten for years to track every calorie, every macro, every gram of protein and carbon fat. And traditional budgeting is taught in the same way. We’re taught the calorie counting of personal finance. That’s what traditional budgeting is.

By contrast, the anti-budget is the intuitive eating of personal finance. So with the anti-budget, you divide your budget into two broad categories. There’s what you save and there’s what you spend, and you pay attention to what you save first. And in this context, I’m using the word save to refer to anything that improves your net worth. So it could be extra payments that you make towards a debt. It could be retirement investments, it could be literal savings in a savings account. But any net worth improvement is what I mean when I say the word save in this context.

And so, decide how much you’re going to save, pull that off the top first, and then whatever is left over is yours to spend. And you don’t have to worry about how much you’re spending on toothpaste versus Taylor Swift tickets. It’s yours to spend. Because ultimately, the problem that people run into is they’re “like, Hey, look, I’m trying to budget, but I have this bill from Target. And if I’m at Target, some of it’s groceries, some of it’s clothing, some of it is shampoo and conditioner. Do I have to split this receipt into five different categories? Or do I create a catch-all category that’s called Target? And if I do that, do I need a separate category that’s called Amazon, and then I know how much I’m spending on groceries if part of it comes from?” You know what I mean?

Eric Rosenberg:

Yeah.

Paula Pant:

It becomes really fuzzy. So why not do away with that model entirely so that you don’t have to stress about that? Because ultimately what you’re really trying to do is make sure that you’re saving enough. So just cut to the chase and see if you’re saving enough.

Eric Rosenberg:

Yeah, that’s a really great way to approach budgeting. I like it. And I think a lot of our listeners will appreciate that you don’t have to sit there with a spreadsheet or a calculator and track every single penny as long as you have your financial priorities in order.

Paula Pant:

Right. Exactly.

Eric Rosenberg:

Awesome. Well, thank you so much for joining us today. I really appreciate you sharing your wisdom and your thoughts about how people can get onto a positive journey of financial wellness. So thank you so much for being here again, and if someone wants to connect with you, if they want to learn more, where should they go?

Paula Pant:

Yeah, well, we offer a free ebook. If you go to affordanything.com/escape, it’s all about how to break the shackles of your nine to five, how to grow your wealth, grow your net worth, save money, live better focus on what matters so you can live a wealthier life, but you can download it for free at affordanything.com/escape.

Eric Rosenberg:

Awesome. Everyone, I encourage you to do that. Who doesn’t love a good free ebook that’s going to help you level up your money skills? So thank you again, Paula. We’ll talk to you next time.

Paula Pant:

All right, thank you.

Eric Rosenberg:

Well, that one was super inspirational for me. I know that I’m always looking for new ways to improve my money, and I’ve been writing about money for more than a decade. So if you are new to the journey to financial wellness, make sure you have the Payactiv app¹. If you don’t already head to the Google Play Store or the Apple App Store and download it right away. With the Payactiv app, you can do so many things. That includes free appointments with financial advisors, automated savings tools², budgeting tools, and a whole lot more, even some discounts on services you might already be paying for. So you might as well save a little money. If you don’t use the Payactiv Visa^® Card* you can get your direct deposit³ right there and automatically put a portion of your paycheck away for savings. So just like Paula said, that 1% rule, you can put that to work just in a few taps in the Payactiv app.

Thanks for listening and sticking around until the end. And until next time, keep on living the life you’ve earned.

¹ Standard data rates may apply from your wireless service provider.

² Goal-based saving is a set-aside account, and you will not receive interest or other earnings on the funds within the goal-based account.

³  Direct deposit may take one to two pay cycles before you’ll see the amount you’re paid live in your bank account.

* The Payactiv Visa Prepaid Card is issued by Central Bank of Kansas City, Member FDIC, pursuant to a license from Visa U.S.A. Inc. Certain fees, terms, and conditions are associated with the approval, maintenance, and use of the Card. You should consult your Cardholder Agreement and the Fee Schedule at payactiv.com/card411. If you have questions regarding the Card or such fees, terms, and conditions, you can contact us toll free at 1-877-747-5862, 24 hours a day, 7 days a week.