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Mistakes for Young People to Avoid - Savings & Budgeting
I can tell you right now - When I was 18, I never thought about budgets or savings or anything like that. I was in college and was going to be making loads of money when I got out. I had a MINI. I had a brand new TV. Brand new furniture for my apartment. Etc., etc.
Fast-forward five years to now. I am 23, married, one child, driving a grocery-getter, living in the upstairs of my parents' house, working the same job I was when I was in college.
So what happened?
I did not budget. I did not save. I did not have a realistic outlook.
I thought a job would just come with my Certificate. Dead wrong. When my long-term girlfriend left me, I figured it was time to get a new TV and videogaming system, by way of getting a Best Buy credit card. I just paid that card off last month...
I was single for six months, and in that six months I made the worst financial decisions in my life. Along with getting that credit card, I also decided it was time to get a truck. You know, so I could do man things, like go hunting and all that. I did not even own a firearm or had ever been hunting. I took my beloved dream car and traded it in, financing the difference. Insurance sky-rocketed and I was now paying for two cars.
All the while, since I started making money at age 12, I never once saved my money - except for a big purchase - and never had a budget, never had money for emergencies, etc.
Here are some great tips for anyone:
Create a Budget
Sure, you may have more income than you do expenses, but that does not always mean you will have money at the end of the month. You need to create a budget. The best way to do this - in my opinion - is to use a spreadsheet.
Add up your income to get the total of one month's worth. Now, round down to the nearest hundreds place. If you make $1,989/mo, round down to $1,900. This will help you create a buffer. It's like finding an extra $20 bill in yesteryear's ski jacket, but it's $89 every month!
Now, get your bills. For every bill, round to the nearest ones place. Your phone bill is $46.13/mo? Round to $47. This, again, creates a buffer. The point of this is to 1) Guarantee you always have enough for the bill, and 2) Account for any fluctuation in amount due month-to-month. My phone bill varies between $1-2 difference on some months, so round accordingly.
With your bills, find all of the due dates. Chances are they are not all due on the same day, so you have to consider this in your budget as well.
You may also want to include any percentage rates on your loans/credit lines, so as to easily set up your payment plan. I use the snowball method. Pay off the highest percentage rate first. Therefore, I put my highest percentage loan at the top of my budget spreadsheet, though I do not list the percentages. You may.
You should have about five or six columns now. From left to right, it may look like this: Amount | Payee | 5th | 20th | Due Date | Rate. Obviously, in each column, you would put the appropriate information in there.
Remember, make a budget for everything!
Click here to see our budget as an example
You may also decide to do a grocery budget - which I strongly recommend. Head on over to my blog post about that.
Wouldn't it be great if we all had the ability to pay ourselves? And then, if something ever happened, we could just reach into our pockets and pull out the needed dough? Oh, it is possible...
Many people do not save money. As a result, they end up with unreliable vehicles, broken-down homes, empty wallets, and - quite often - torn relationships with loved ones.
Like I said before, I never saved. Until about a year ago. Now, I keep at least $1,000 in my emergency fund, $500 in my healthcare fund, and $300 in my auto maintenance fund. Obviously, I do not stop contributing to those savings, but I do slide the priority of savings down to number two while I pay down debts.
Many people find that remembering to save is one of the hardest things to do. There are a couple workarounds for this.
- If your employer allows direct deposit, you may select a certain amount of your check to be automatically deposited into your savings when your salary check goes through.
- On your W-4, you may select a specific amount to be withheld from your paychecks. This is great because it will be like the money is not even there. Then, come tax season, you get even more back. Which, I suggest, you throw straight into savings or - if you already have enough in there - into an investment.
- Make it part of your budget. You can add 'Savings' as a Payee so that you will pay it just like any other bill. This creates a smaller 'difference' between your income and expenses, and seeing that smaller number will be less tempting.
How I Do It
I incorporate quite a few different techniques into my savings strategy.
Probably the biggest player in my savings is - believe it or not - an app for my iPhone. With this app, I am able to create specific budgets for spending categories (auto, toiletries, etc.) that help me stay in-line with my spending (this app does not replace my spreadsheet budget). It also acts as a checkbook register. So every time I spend money, I record the date, payee, category, and amount. With the amount, I always round up to the nearest dollar. See? Another buffer. So we round up with expenses, and down with income.
Here are some screen shots of the app:
Set up multiple accounts for one actual account, in order to more easily divide your money. I use 'ICCU: Payment' to put aside extra money to use on the debt that I am paying down, on top of what I already have budgeted to pay.
Round up for expenses/purchases. See the $12 in the first image, in account 'ICCU: Payment'? That is what was saved last pay period just by rounding up. So it is going to be applied to the next payment on the highest interest loan.
Keep in-line with budgets.
Track what you spend most on, using expense reports. See if you can cut costs anywhere.
You can download this app, PocketMoney, here: http://bit.ly/q11c3q
I also drive economically and track my mileage. My vehicle is rated at 24 city / 29 highway. I am getting 35 mpg with 80% city mileage. Check out CleanMPG for more info, and stay tunes for my blog on this topic in the future.
Again, we budget our groceries. We also eat very healthy, by shopping mainly the outer rim of the grocery store.
We do not dine out. That's right. No dining out whatsoever. No quick trips to the grocery store for anything 'extra'. No fast food. No restaurant dining.
We cut all unnecessary costs. Got rid of Netflix, even though it was only $11/mo. Putting that towards monthly payments on debts instead, shaves months off of the payoff time.
We have only one frivolous item on our budget. 'Treats'. $30/mo. This includes: coffee shops, chocolates, unnecessary groceries, toys, etc.
There is so much to list. But most importantly, the biggest money savers have been my own genuine ideas. Rounding and driving safer/more economical. No one mentioned these or suggested them. They came to me. Therefore, you will most likely find something that works for you, and that's great!
July 11th, 2011 at 10:08 pm 1310418528
July 11th, 2011 at 10:43 pm 1310420594
I was taught well by my parents, and I feel badly for those who had to learn by trial and error. I was lucky to be able to see my parents spend and save responsibly and see how well it worked for them.
I would disagree with the advice about the W4, though. Why give the government a year long interest free loan? I'd rather invest that money as I get it and give it an extra year to work for me. Or if you are using it to pay down debt, you can get a year ahead of it if you don't give it to the government in the first place!
July 12th, 2011 at 12:53 am 1310428422
July 12th, 2011 at 02:23 am 1310433804
I also believe that Personal Finance should be a REQUIRED year-long course in high school. All I learnt from school about finances was how to SPEND money.
July 12th, 2011 at 08:16 pm 1310498202