This post is aimed at those who are coming out of school and looking to get established financially, but it can also apply to anyone at any point in life who decides to wipe their monetary slate clean and start fresh again. When you’re young, like college age, you’re working your first job without a second thought as to where most of your money goes. College life is infamous for being a time of barely scraping by, and most students quickly learn how to make the paycheck to paycheck lifestyle work for them. That’s our first introduction to budgeting, but it’s not our final ambition. We grow older, meet someone special, yearn to settle down and these drives tend to focus on saving and earning, rather than spending. We learn the true meaning of delayed gratification, but it’s all to increase your wealth.
It can be a long, tough bridge for a lot of new entrants to the adult world, and sometimes it’s accompanied by a financial catastrophe or two, but that’s how we humans learn, isn’t it? And if you do make mistakes on the way to that better place, there’s plenty you can do to make it better.
Here are a few budgeting tips that will not only improve your financial situation, but also free you up to make the important savings, investment, credit and purchase decisions in your life.
Get a Better Handle on Your Credit
Credit is usually a major issue for 20-somethings, especially if you have no credit profile at all. It takes time to build a strong credit profile, so you should start working on that as soon as you can.
Wherever you may be in life, get yourself a line of credit and maintain it – preferably for something you don’t absolutely need. There are varying schools of thought as to how much balance is ok, and what is detrimental, and if you want to get technical about every point there is probably some merit to those ideas. In general, keep your balance below 20% of your credit limit and pay your bills on time. If you do happen to be late, make sure that you are not late by more than thirty days or you face penalties and a negative mark on your credit report.
Young people who already have a substantial amount of debt face obstacles from a different direction. Some young people get too deep in debt during the college years and rack up a lot student loan debt. There’s not much you can do about your student loans, but there’s plenty you can do about other debt, and you need to move on it quickly if you’re already under water.
Consult a credit repair specialist to repair whatever dings your childhood indiscretions left behind. The consultation costs dwarf in comparison to the thousands in savings you stand to gain in your lifetime. A poor credit rating means higher interest rates because you represent a greater risk to your creditors. With a cleaned statement, you have the opportunity at a fresh start. Car and mortgage loans are where you’ll feel the most savings, but the better credit rating will permeate all aspects of your financial life. From credit cards, to loan approvals, you’ll find more doors opening with your clean credit rating.
You should also set up a workable plan to get out of debt as soon as possible. Debt is like an anchor that keeps you from moving forward in life. The sooner you deal with it, the sooner you can begin making serious progress in your life.
Make a Serious Review of Your Expenses and Cut What You Can
One of the biggest pieces of advice you’ll hear from financial advisors online is to cut spending on Starbucks. Starbucks is like a blanket word to describe all of our frivolous spending, like grabbing a pack of gum when we hit the liquor store or a soda at the gas station. Impulse expenses for the most part. Even if you cut one of those from your routine per week, you’ll save hundreds every year and thousands within your lifetime. That money can be invested for retirement or to payoff debts.
Look at what you might be willing to cut now, and try to allocate that money towards something you can splurge on. Imagine that everyone can see your wealth, and then realize that you don’t need empty status symbols to live a quality life style. Rich experiences are usually worth more to us than possessions, since they help to give us a different perspective on life. And one of the under-appreciated aspects of experiences is that they don’t always have to cost a lot of money!
Doing things with family and friends, taking trips on the cheap, volunteering to help others or doing things that force you to move out of your comfort zone don’t have to cost a lot of money, but they can be downright life changing.
Don’t Buy Cheap – Buy Quality
That was actually advice that a mentor gave me early in life, and it’s among the best advice I’ve ever been given. The problem with cheap is that it usually doesn’t last very long, and that forces you to eventually replace what ever it is you bought, spending twice as much money. Buy the best of any necessary items you need – cars, clothing, computers, furniture, household items and tools – that you can afford. Try buying better quality items second hand at much lower prices. The thing about quality is that it lasts and lasts, and you need to tie into that early.
A frugal lifestyle can become addicting, but you need to make sure that you also don’t martyr yourself for the sake of your bank accounts. You should always examine what means most to you in life, and pay for quality where you want it. If you really want something, it’s often better to splurge a little, rather than to try to live a live of perpetual self-denial.
Quality also means being discerning, and developing your own tastes. If that taste happens to be more expensive than alternatives, you’ll be fine as long as you have budgeted for it. Every sacrifice we make should have a pay off, and you should use the money you save to do something productive in life, something that will ad value.
Set As Much As You Can on Automatic Pilot
Ideally, you’ll do everything automatically, and that‘s easier to do than ever. Plan to make sure that every bill will be paid several days before it’s due, to make sure that you’re always paid on time. Paychecks should go directly to their proper accounts, and automatically divided between your checking, savings and retirement accounts. The less input you have to have in this equation, the better your chances of saving money for yourself.
In fact, if you’re not a natural saver – and most people aren’t – setting your finances on automatic pilot may be your only chance at financial independence. By making your finances automatic, you remove bad judgment and human error from the mix, and ensure that you’re always making progress toward your bigger picture goals.
If you’re just starting out in life – whether you’re graduating from college or high school, or wiping your slate clean and starting fresh – you need to have a plan to help you move forward. Once you get it set up and running on auto pilot, the rest of your financial life will be that much easier. But the critical step is getting it all started, and going in the right direction.