Turning 20 means a lot nowadays. Being the decade of adulting, this is when you are stepping out of college or starting your career – or trying out various things to find it – and starting to see your own cash rolling in. Some are getting married or prepping to start their own family. Some are supporting their relatives through school or wanting to travel around the world. It is simply a time where financial independence and freedom is prevalent.
In this time, it is so easy to get lost in spending. It is then crucial to know the rules and responsibilities for your finances to enjoy the present while ensuring that what you have and experience today lasts long until your retirement.
The first step to help you on your way is to understand your cash flow. Start by figuring out how much you have after paying taxes. It’s easier to budget if you know how much you are getting, as it helps you set concrete limits on yourself for spending for everything on your budget list. There are applications and tools to help you out, but for those who prefer the old-fashioned methods, here are several methods to help you see a clear image of your cash and how to manage it:
The 50-30-20 budgeting method works best for newbies and those that want flexible budgets. Simply divide your money into three. 50% goes to your daily needs, such as transportation, groceries, bills, rents, and utilities, while 30% goes to your wants or extras. This may include pampering yourself, splurging, concerts, out of the country trips, and eating out with friends. Lastly, 20% is for the future you. This is for your above-minimum debt payments, investing, and saving for the future. As it is flexible, you can easily adjust the percentage to suit your needs.
Another option is bullet journals. This is obviously an excellent way to organize your goals and tasks, but it works for budgeting too. This is for those who prefer physically writing down their goals, tasks, and reminders, as opposed to typing them out or relying heavily on applications. As bullet journals are personalized and hyper-organized, you can easily jot down new needs and update your budget everywhere and anywhere.
Next is the old-school envelope method. You can store up your budget in the form of cash inside envelopes labeled for each spending category. This is a great option for those who prefer using cash and need more financial boundaries, as it sets stricter limits on spending.
Tweak and Track
Speaking of control, you may also want to track where your hard-earned money goes. Start with figuring out what you usually spend on, from your daily needs, such as groceries, bills, and transportation, up to the money you spend on entertainment. Using receipts from past purchases can help you out tremendously. Doing this will help you categorize and figure out how much you actually spend every month. Do keep in mind that incomes and your spending habits change, so make sure to adjust your budget accordingly. You can then tweak your budget, cutting on the extra spending and adding a bit more figures for other categories. Make sure that your budget is realistic and sustainable. If you are having a hard time staying in a kind of budget, change and adjust it until you find the one that works for you the best. This way, you can maximize every penny while living the lifestyle you want.
You do not have to use and record everything in Excel. There are budgeting tools available, such as Mint and Wally, that you can use for free and You Need A Budget, Mvelopes, and PocketGuard with their own respective subscriptions. Either way, these are great budgeting tools you need to check out. Just figure out which suits your spending and budgeting needs and works for you the most. You may also want to work with professionals, such as financial advisers. Keeping trying until you find one that is perfect for you.
Credit and Debts
Many say that one of the best things you can do for your finances in the long term is to avoid credit card debt, especially high-interest ones. This can ruin your finances over time and leech away your wealth. You should make it a point to only charge things that you can pay for in full at the end of the month. The same goes for debts. Make it a point to only take out loans for items and reasons that are important and out of your budget, such as emergencies, car problems, and medical bills. Before making the decision for a loan, ask yourself if it’s really worth your money and how soon you will be able to pay it off.
If you have withstanding loans, such as personal and student loans, make sure to pay them down. Many recommend the debt avalanche payoff method that is intended to save you the most on interest. This works by listing down all your balances from the highest interest to the lowest and using whatever wiggle room in your budget to pay extra on the balance on top of your list while paying the minimum on all the rest. Once the top is done, just keep working your way down your list until you pay off everything.
After paying off most of your debts and keeping your credit down, the next best step for you is to start investing. In investments, you can make compounding returns- earning money on top of your money. The sooner you start investing, the better since, through this, you can get more. With the help of a financial adviser, you can get recommendations on investment types and build your investment portfolio.
The secret is to invest in different companies and different types of stocks. It is then important to understand and know the risks associated with each type of investment. Know the basics of how to invest in low cost funds and use dividend stocks to your advantage. Learn how you can use your money to improve your returns and use taxable investment accounts in addition to your tax-advantaged retirement account. When you understand the basics of investing, you can easily build up your wealth over time.
Saving for Yourself
It is also a good choice to start investing in yourself through life insurance and retirement plans. Starting early means more in the end. With so many choices available, you can easily choose what suits your needs in the future and the payment set-up. You never know what life will throw at you next, so it’s better to be financially prepared every time since you can’t find money without consequences that easily nowadays. Personal savings nowadays should be large enough to support six months’ worth of living expenses.
You can save a lot more through reducing your daily expenses, always looking for cheaper options, shopping at the most affordable stores for your weekly groceries, and taking advantage of coupons. Save and wait for items to go on sale before buying. It is also good to stop yourself from buying on impulse and purchasing what is currently trending on the internet. Living a frugal lifestyle will allow you to have more to spend on your investments and put in your savings account.
It’s a great objective to get on the right financial track, but it is crucial to work towards something. What is all this managing when you do not have something to accomplish or arrive? Setting goals will help motivate you to be a wise spender, diligent, and consistent in budgeting and saving your money for a bigger purpose. Setting yourself possible goals to save for your emergency fund is a good start. You may also want short term, medium term, and long term goals. The only limit is your financial capability, but if you are off to start saving for that now, that goal of yours could be realized in the next few years.
To further help you in managing your money, here are several tips more to consider:
- Set your priorities in life straight.
- Contemplate whether your extra money is for spending, investing, saving, making purchases, and so on.
- Differentiate your needs from your wants, which may include your subscriptions to various platforms and services you currently have.
- It is also good to have extra work on the side for an extra source of income.
- Learn to say no, or at least put off a purchase. Learning how and when to say this word can help you use your financial resources more effectively.
- Learn how to cook. Eating fast-food consistently, with all its preservatives, often can lead to health problems and a dent on your food budget.
- Practice the habit of spending within your means. This will give you wiggle room for more money for savings and investments. Avoid using your credit cards and applying for loans, as these will only give you a temporary reprieve from your financial problems. Later on, you will just find yourself with a new bill to pay for at the end of the month.
It may seem hard to keep in mind or maintain these aforementioned tips to manage your money this early in life. After all, being in your 20’s is such an exciting and intense period of time to be in with your new financial responsibilities, creating and starting your career opportunities, and building relationships with others. With the fast pace life around you and so much to spend your money on, it is easy to drown in the expenses and bills. But with the right mindset, tools, and determination, it will be easier to manage your money in your 20s through the tips above. Remember that your wealth in your 30s and 40s will be largely determined by the financial decisions you are making now.