An employer approached you to offer you a full-time job as soon as you completed your studies at the university. You were beyond ecstatic, and rightfully so because you had worked hard to get to this point of your life.
Then, on graduation day, if not the day after, you realise that the time has come to face the devils and horrors of reality. On top of starting a new chapter of your life with a new job, you have student loan debt to repay as well as other adult responsibilities. Undoubtedly, being a twentysomething can be overwhelming, although society may have an opposite opinion about that.
Teaching yourself the art of managing your finances for the rest of your life is a daunting task. Baffled with what to do, when to do it, and how to plan for your future, I think it is safe to say that many of us do not have a stinking clue as to where to start. As a result, we find extreme difficulties maintaining a healthy balance between being present and reaching sound financial choices for our futures.
For example, settling your student debts is the first item on your list of agendas, rather than going for an electronic music festival such as Ultra or Tomorrowland. So, the first way to improve your financial statements is to get used to living independently, without depending on funds coming from your parents’ wallets.
To manage my money for the future and remain within my needs, I live by these few financial tips (or principles):
1. Separate Wants from Needs
Purchase less and be wise with your choices. To have a better grip over your cash for the future, setting a clear distinction between needs and wants is a good starting point.
Let’s start with the former. Needs is another word for “essentials”. Items that ensure your basic survival are classified as needs. Examples include utility bills, food, water, clothing and rent. Skipping a dinner with your friend to stay in and have home-cooked meals will benefit your wallet (and your health).
Dining in a restaurant has its perks that usually come in the form of convenience and the absence of the need for you to clean up the mess you made. There is no harm in eating out occasionally. However, doing it every night goes against the financial mission you are trying to accomplish. When you cut the frequency of eating out by a substantial amount, you will see the difference in your bank account.
Dining at home is a giant leap to securing your financial future. You are oblivious to the amount spent on food, especially when you decide to consume food cooked and sold by a restaurant. However, if you set a monthly budget on takeaways and another monthly budget solely for groceries, your financial future will shine brighter.
Now, let’s talk wants. When you think about it, wants are just physical manifestations of our impulsive brain. In other words, when you see something, although it is not a key survival ingredient, having it will make your life less miserable. New clothing weekly or new electronic devices are items you would not purchase suddenly. For instance, you will plan out to budget in such a manner that you would only buy that new set of surround speakers once you have enough leftover money to splurge.
As you advance in life, you will come to the revelation that you do not need that new phone case advertised by an influencer you followed on Instagram. You will begin to observe that your financial portfolio begins to improve when you learn to appreciate the importance of being wise with your money, such as: repaying your student loan debt as soon as possible, paying bills, paying rent, and creating room for the wants from time to time.
2. Develop A Budget
When you have a budget on hand, you can keep your personal financial statements organised and be confident that you know what you are doing with the money you have now.
Unfortunately, the word “budget” sounds scary for many because it holds people in their place, and one of the most terrifying things known to humankind is the idea of limitation. Moreover, having a budget means we must sacrifice our short-term pleasures for the sake of our future selves. If history has proven anything, it is that when we humans want something now, we make no room for negotiations. Therefore, we must have it here and now.
So, when we walk past a Starbuck establishment, rather than waiting until we get back home to rehydrate ourselves with a glass of water, most of us will eventually return home with a specialty drink from Starbucks.
To have a future-friendly budget, you should create one that allows you to save while spending comfortably.
Reserving some time to create a budget with spreadsheets is a step in the right direction. In addition, developing those spreadsheets will allow modifications as you age and begin to bring home more money.
Alongside having financial spreadsheets to have a clear overview of your financial position, I use the Money app. Money app allows its users to track their credit card expenses, loans, investments and monthly spending with built-in budgeting features. Additionally, once you have the Money app up and running on your mobile device, Money divides all your expenses into categories that you have formed. Now, that is a valuable feature to have in any financial app.
The app also tracks your net worth over time, and I love having access to this feature. Plus, observing how much money you have spent category-wise paints a clear picture of where your money is going. The Money app will assist you in your journey to build a robust financial future.
3. Invest and Save
Another effective way to manage your money for the betterment of your future is to invest as much money as you can. The amount of money you can make through investments is directly proportional to the time your money stays invested. Therefore, the more time your money remains invested, the more massive your financial wealth will be in the future.
While you are in your twenties, investing your money in several ways is only helping you out for the future. For example, person A, who is 20 years of age, puts in $1,000 for 20 years, and person B, who is 30, puts in $2,000 for a decade. Both are investing $20,000 into their fund until they hit 40. Over time, each account amasses 6% interest. By the time they are 40 years old, person A will have earned approximately $39,000 while person B made roughly $28,000. The key message: start investing and saving now.
I began to set up a retirement fund as soon as I started investing in my twenties. Moreover, establishing my retirement in my twenties will accumulate interest over time, such as the example mentioned above. If you want to find out your strategy and play around with numbers, you can fiddle with this investment calculator. By investing your money into income-generating assets, you are safeguarding your financial future.
Many of us have encountered the phrase, “You have to have money to spend money.” As a twentysomething, I can tell you that you have numerous options to make money: saving, investing and reaching well-informed decisions. Spending your money will come down to whether you need to spend it or not in the first place.
By incorporating the tips above, you will have control over your money now and in the future.