It’s part 2 in the Becoming You series, and today we’re talking about how to manage finances!
Last time we talked about starting healthy habits, and I was blown away by the amazing feedback! I’m so glad you all enjoyed it, and I’m so excited to be talking about this topic today!
Figuring out how to manage finances can be hard, especially when you’re in college, just graduated and unemployed, or at your first “real” job but swimming in student debt. However, just becomes something is hard doesn’t mean it’s impossible!
Unfortunately, we live in a world where money really does have a huge impact on our quality of life. If you want to travel, you’ve got to be able to afford it. Want to retire eventually? Being in a ton of debt isn’t going to make for a good retirement. I know that it seems crazy to be thinking about these things now, but here are 3 reasons you should be thinking how to manage finances in your twenties:
1. Starting early relieves stress later
This is just the reality of almost everything in life. When you learn how to manage finances early, you free up stress later. That’s because you’ve learned how to minimize debt, stay within a budget, and work hard to earn what you need. This allows you to enjoy the life you have right now instead of worrying more later when the deadline is getting closer and you still have 50,000 to pay off.
2. It starts good habits
Spending can become one of your best or one of your worst habits. Are you an impulse shopper? Let’s nip that in the bud before it’s been going on for 15 years and you’ve gotten yourself in debt because of it. Do you have a bad habit of forgetting to pay bills on time? Let’s work on putting a system in place to help you now so that it’s never a problem again! These things are so easy to fix, but become very big problems when they’re put off until later.
3. It gives you more freedom
Often when we think of learning how to manage finances in our twenties or in college we think about it in terms of “If I do a good job on this now, I can have fun when I’m 30.” I don’t know about you, but that’s not all that motivating to me. I mean, yes, it’s very important and it is a large part of why Connor and I don’t spend a lot of money, but the truth is that if you’re responsible with your money now, you also get to have more fun now! Here’s why. Let’s say you buy three Starbucks drinks and a dinner out every week. That’s about $45 a week if you get a drink with dinner. And that’s not very much compared to what a lot of college students spend. But if you put that all together, that’s $2,340 a year. That’s a vacation to Cuba, folks. If you can afford to spend that much on Starbucks and restaurants, why not stop spending it there and instead go on an amazing adventure somewhere during Spring Break next year? Figuring out how to manage finances can give you more freedom now to do what you want.
I hope I’ve convinced you that this is important. So, with those points in mind, here are my tips on how to manage finances in your twenties so that you can live life fuller, freer, and with less stress!
Believe that what you have is enough
This is a huge issue that many of us have with money, myself included. It can be really easy to think “Man, if I was just making $10,000 a year more I could have it all.” But where does that kind of thinking get you? Assuming that you are in the best position that you can be at the present moment, changing your mindset from “I need X amount of money a year” to “I have X amount of money this year” can make a huge difference.
When you change your mindset from a wish-list to a statement of reality, it helps show you what you can and cannot do. Maybe you need to look for a smaller apartment that’s $200 a month less than where you’re living now. Maybe you need to stop going out for dinner with your friends after work. The truth is, no matter what it is, what you have is enough. You just need to figure out how to make it work. For example, Connor and I settled on only $50 a month each in spending money. Any new clothes, coffee, fast food, anything had to come out of that $50. It seems like a lot, but then you go out for lunch once with a friend and it’s half-way gone. But you know what? It worked for us and we survived.
When you switch to a mindset that “what I have is enough”, you start to live within your means.
Living within your means is the key to good financial management, but it can be so hard for some of us! Especially when you’re in college or in a lot of debt and you don’t have very much wiggle room.
Create a budget
I hate budgeting so much. Seriously, I write about saving money and budgeting quite a bit but it’s mainly because I figure that if my tips are helping me, who absolutely despises it, then it’s gotta help someone else.
But the reason I hate budgeting right now is that I have no idea what our income is. We’re college students–we’re spending more than we make because of tuition and rent alone. So how do you budget when most of your “income” is just savings from a high school job or a student loan?
I’ve figured out a system that seems to work for those of us without a steady income. First off, you figure out your expenses. This is the opposite of most budget plans say to do. Usually you calculate your income first, but if you don’t know your income, that doesn’t help all that much. So first, figure out your mandatory expenses such as rent, utilities, tuition, and textbooks. Then, you figure out how much you need from that alone. If you are already over, either find a job/take on more hours or figure out how to cut costs (moving to a smaller apartment, not having internet at home, cutting down on your cell phone bill, etc.).
After you’ve figured out your mandatory expenses, see what you have left over when you subtract that from your expected income and your savings/loan. Then, from that remaining amount, figure out how much you want to save as an emergency fund and what you can afford for spending money over the year. Make a list of any big purchases you think you’ll need to make, and factor those in. Then break it down by week/month and take out that amount every week/month in cash–when it’s gone it’s gone. If you are dealing with a loan, I would suggest trying to use as little as possible for personal expenses so that you have less to pay off later. If you’re dipping into your savings, you have a bit more freedom.
Here’s why you want to do this now: If you can make a budget and stick to it when your income is erratic at best, nonexistent, or swallowed up in your student debt, you can handle anything. Honestly, this is probably the hardest stage of your life financially, assuming you take control of it now (otherwise it’ll just get a whole lot worse). So if you can figure this out and get a system down now, you’ll be set!
Address your weaknesses now
My weakness is small purchases. I will buy a coffee on campus or a cookie here or there and it never seems like much but it adds up quickly! I’m also not very good at moving money into the correct account, so I’m often scrambling last minute to try and sort everything out and I find it very stressful (I am SO not a details-person).
So what Connor and I have done is take out spending money in cash and set up automated transactions. Easy as that. But those are habits that I will continue for the rest of my life, likely. Figuring out what your weaknesses are when it comes to finance and nipping them in the bud can help you have less stress later by knowing that it’s going to be taken care of and getting rid of the ambiguity that we often have around money (I really hate online banking. A necessary evil I guess).
Figuring out how to manage finances can seem overwhelming, but being responsible in this area opens the door to so many adventures down the road.
What are some finance-tips that you have? Leave them in the comments below!
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Find this post helpful? Check out my other posts on personal finance and budgeting:
- Updating your Closet on a College Budget
- How to Budget your Money as a Student
- 11 Money Saving Tips for College Students
- Saving Money on Textbooks
- For Decorating Your Dorm on a Budget