All too often, young people traverse the world with no clue about how to manage finances and save for the long term. With a good bit of real world experience myself, I am going to share some great tips to ensure financial stability for here and now, but most importantly, the future. Onwards!
1. Get outta debt
Pay off ALL consumer debt as soon as you can. Long term loans like student loans and car loans will obviously take longer, but credit card debt looms over your head like an ugly cloud. Bought a TV on your Best Buy card? Pay it off first. Using your Capital One credit card too much? Pay it off. Interest charges pain me. But nothing beats the psychological satisfaction of defeating devilish debt.
2. Build credit
GET A CREDIT CARD. And no, the debit/credit card doesn’t really count. Pay all your bills on time. Building a good credit history is seminal to your life’s goals. The difference between an average and excellent credit score can mean thousands of dollars when you buy your first home. But in order for banks to trust you, they need to see that you are responsible and mature enough to pay some bills.
3. Online and paperless
Do all of your banking online. The best thing I ever did was set up online bill pay. It’s quick, easy, and you never have to actually mail anything. Oh, and it’s free too through most major banks. Also, most banks have smartphone apps and some like Chase even let you deposit checks through your phone.
4. Monitor your situation like a hawk
Mint.com is an amazing resource for anyone. It’s brilliant really. The web site compiles all your financial accounts including debt in one place and updates DYNAMICALLY. All by itself. And you can even set up budgets for food, clothes, and bars. Then, it sends weekly updates, and they even have a free app for smartphones. It’s pretty awesome, not even gonna tell a lie.
Additionally, get a free credit check online to make sure you don’t have outstanding unknown debts. Also, it’s good to know your credit rating just to know.
5. Know your limits and save
Open up MS Excel. on the left side, list your monthly income. On the right side, list your costs, but separate them using fixed vs. variable. Fixed costs are the same ones every month (rent, cable, internet, electricity) and variable costs are ever changing (food, clothes, “fun money”, etc.) Overestimate costs when unsure.
The remaining after you subtract your revenue minus costs is your disposable income. Try to save 1/2 of this by putting it in an online savings account (avoid brick and mortar banks – they usually offer less interest). I use Discover Bank. Also, you can set up automatic transfers from your checking account so it forces you to save. You can spend the other half on fun things like hobbies, entertainment, and impulse buys. Go ahead, live a little!
6. Last tidbits
* Aim to spend 1/3 or less of your income on rent. More than that and it’s not wise.
* 401K match = free money. If your company has it, do it. No brainer.
* Check your account often – knowledge about your financial situation is so important. Somewhere along the way to civilization, it became taboo to talk about money. Parents tend to be secretive about the family budget, so we never learned. Friends don’t want to seem aloof, so they rarely ask others what to do. Inquire. Gain knowledge. And as I paraphrase the timeless poet Snoop Dogg, make sure to keep your mind on your money and your money on your mind.