When you’re in your twenties, it’s your first real go at being an adult. With newfound freedom and the whole world in front of you, it can be easy to get overwhelmed and lose sight of your finances. Developing healthy financial habits early on will help set you up on a debt-free, stable path. Here are the biggest tips for getting a hold of your finances and managing debt.
Understand Your Loan Repayment
The dreaded word, loans, can send one running away in utter fear. Whether you have a mountain of student loans to repay or a home or auto loan, the debt looming over you can be overwhelming and seem impossible to manage. Which is why it is important to understand how your loan works and the best plan for your repayment. Whether Sallie Mae has become a household name or you signed up for your loans through a different company, take the time to understand your responsibility for paying back your loans.
Take Advantage of Work Benefits
At the start of your career, retirement seems so far out of reach, but it is important to plan for the future. Even early on, if your employer offers a solid 401K plan, it’s important to take advantage of it. Most employers will match a percentage of your pre-tax contributions to your 401K, so make sure you don’t miss out on the chance for extra money towards your retirement.
Start Saving Right Away
You’re making all this money now, so you should just spend it, right? Wrong. When all is said and done and all your bills are paid, you should save any additional money. Calculate what your vital expenses are each month and determine what will be left over. Even if you are only putting away 2% of your monthly income into your savings, that money will accrue over time. Get in the habit of setting the same amount of money aside each month, either for a rainy day fund or a specific big purchase. Once you create the habit of saving, it will become second nature. You will find your savings rapidly increasing without you having to think twice about it.
Live Within Your Means
You might have your eye on your dream car or a fancy apartment, but unfortunately that might not be realistic at the beginning of your career. To avoid building up a pile of debt, live within or below your means. So maybe you can afford the shiniest new car – but do you really need it? Or could you opt for a more practical purchase and contribute the difference you would have spent to paying your bills?
Set a Budget
This goes hand-in-hand with living within your means. Prior to making any frivolous purchases, set a budget that accurately reflects your standard income and expenses each month. Start with the obvious expenses: rent, utilities, loans, car payments – all the “must pay” bills you have. Add those up and subtract the difference from your monthly income. To easily track your expenses, input your budget into a spreadsheet that you can edit. You can also take advantage of Mint to easily track your biggest spending categories and set parameters for yourself. After your necessary expenses are mapped out, you can see exactly how much money you will have left over each month and can allocate them to extra categories like entertainment, clothing or the occasional treat yourself day.
Research Purchases Beforehand
Having a budget in mind before embarking on any purchase is a great place to start, but it’s also helpful to do your research. Shop around for the best deal before handing over the big bucks for things like cars, furniture, or electronics. Know the going rate and pay attention as sales and discounts pop up – and use these in your favor. If you are able to hold off on making a purchase, you may be able to save more money in the long run.
Cut the Coffee
Give up coffee? Absolutely not. But ditching your usual Starbucks run will save you money over time (and help you stay healthier). Little purchases like buying lunch or coffee daily or always upgrading when the latest and greatest hits the market can burn a hole in your wallet.
Build Credit the Right Way
You need credit for big purchases, but it’s easy to rack up credit card debt that you can’t pay off. Spend time research different credit card plans and choose one that works best for what you need. Watch the interest rate, as your overall payment will increase the longer you don’t pay it off. Once you’ve found the right credit card, use it for purchases you know you can pay back, like gas and groceries. At least make sure to pay the minimum each month (if not more) to avoid building up too much dept.
Bring In Extra Income
Think about ways you can bring in a little side change in your free time. Maybe you can babysit, help out neighbors, or have skills you can use like photography, design, or writing? Having multiple income streams can help secure financial stability, and can even give you extra spending money.
Don’t Forget to Treat Yourself
Alright, before you get to this step, make sure you’ve gotten control of all the others. At the end of the day, your hard work does translate into money, and it’s important to occasionally reward yourself. Having money in savings gives you freedom to treat yourself, as long as you are on top of your expenses, and if you keep tabs on promotions on local things to do from Groupon and other local discount sites, you can stretch your dollar while experiencing exciting new activities, restaurants, and events in your community.