5 Tips for the Twenty-Something Looking for Just a Bit More Financial Control…
The day that I realized I couldn’t remember how much student debt I was in, had no idea how much money was leaving my account each month for automatic bill payments, and whether or not I actually had enough money to stop and get that coffee before work…was the day I decided enough was enough, and sat down to take stock of my finances. These are a few steps that have helped me feel just a little more in control, a little more financially savvy, and even helped to make a little extra money. (***Disclaimer: I am not a financial advisor of any kind. A few points in this article should not be done without first having a discussion with a financial advisor…and maybe your mom).
1. Budget every month.
Yes, I do mean every single month. Excel spreadsheets are your friend here…but if you want to go old-school with pen and paper, be my guest! Whatever you can do with the most ease and consistency to keep track of your money coming in and your money going out, DO IT.
For my budget, I started with a birds-eye view of my accounts first, to understand my debt, monthly bills, and yearly income. After that, I made a list of the things I wanted to spend my money on (going out with friends, household items, etc.), and the things for which I wanted to save. Some of my goals were short-term, others were long term. While it was depressing to see how much was leaving my account for bills and debt, how lofty my spending and saving goals were, and the small amount of money I was bringing in to match… it was empowering to have clear insight into my goal income amount to accommodate the lifestyle and savings ability I wanted.
How much money would you need to make to accommodate the life you want? Those desires are important. When I began this finance journey, it made it very clear that I needed to make a lot more money than I was bringing in, and you might be in the same position. DO NOT let this discourage you…DO let it inspire you to figure out how you can be bringing in more. Most people don’t have enough time (or energy) to take on an entire other job. That is why it is so important to make your money and time work FOR you…and why I’m a big advocate for side-hustles and passive income.
Learning how to invest your money is incredibly important in preparing for your future, and is now easier than ever before. Apps like Robinhood and Public.com make what used to belong only to the elite accessible to anyone over the age of 18 with a smartphone. Make sure to research the stocks you are interested in BEFORE you buy, and flesh out the majority of your profile with stocks that you will hold for longer than a year. This will ensure you avoid short-term capital gains tax which can be up to 37%. Hands-on investing like this can be very useful for saving projects that you want to see realized within a few years. For retirement-length investing, open a Roth IRA. You can put $6,000 into it each year, and because the income has already been taxed before it goes into the account, all of the growth inside the account is tax free. Most Roth IRA’s have an annual growth rate of 7%-10%, which is a significant amount of growth, especially when compounded each year.
3. Use credit cards to your advantage.
I cannot stress enough how much this needs to be done carefully. If done incorrectly, you will find yourself drowning in debt with horrible credit. However, if done right, not only can you be privy to great perks, and save money… it can also build your credit. Your credit score, (specifically FICO credit score), is calculated through 5 different percentages: 35% payment history, 30% amounts owed, 15% length of credit history, 10% credit mix, and 10% new credit. All of this means that your credit score will improve if:
- you have a long credit history
- pay off your balance each month (not just the minimum)
- have a variety of different credit cards (also helps if there are different loans and finance accounts)
- don’t open a lot of new credit accounts within the same timeframe
- only use 30% or less of your available credit (this is why increasing your available credit can help your credit go up as you pay off debt)
Using credit cards to your advantage and building your credit opens up doors for better interest rates and loans, making dream-goals more achievable.
4. Find your side-hustle.
I’m convinced that everyone has one. Can you draw? Sell prints and make tee-shirts. Are you good at writing? Look at writing gigs on Fiverr or Upwork (though I would recommend you don’t stay on those sites for forever). Can you sew? Make jewelry? Make some items like headbands (or masks, in this day-and-age) and put them on Etsy. Are you good at social media? Get paid to manage some else’s page.
There will always be SOMEONE who needs SOMETHING that you can do, and do well. You don’t need to be the best at it, and you don’t need to have a ton of connections. You just have to enjoy it and put yourself out there. By just DOING, you will grow in skill and confidence, and most importantly: in income.
5. Learn how to say ‘no’ to your friends.
This will probably be the hardest of all the points… but after you have set your budget, you will have to stick to it. That means there will only be a set amount laid aside for going out and various treats. This will definitely mean saying ‘no’ to that dinner out or a movie in the theatre.
Plan for a certain amount of these fun things a month, and figure out alternatives once you have reached that quota. Perhaps instead of dinner out, you can host a potluck-style meal where all your friends bring a little dish to share. Instead of going to see a movie at the theatre, have friends over to watch a movie at home. You can easily get creative so that you are not missing out on any important community time.
Keeping your goals at the forefront of your mind will make it much easier to say no to the things that will prevent you from attaining them. And sharing is caring…let your friends know what your goals are so they can encourage you in reaching for them!
Your money needs to be working for YOU. Your goals and dreams and desires are important because your happiness and wellbeing are important. Budgeting establishes the plan of action, and keeping your financial goals (buying a house, getting out of debt, taking a vacation, working from home) at the forefront of your mind will give you the courage you will need to think critically about what you are spending your money on, how you are making your time and money work for you, and when you need to say NO to the thing you want in the moment because your goals for the future are more important. Financial literacy is for everyone. You can control your own finances and make money work for you. Now go get that bread!