With the excitement of graduating college and landing your first real job comes the harsh realization that everything in this world costs money. For many who are new to salaried job–and money for that matter–the biggest transition is learning how to be financially stable. While it can be great to make enough per month that you can spend on extravagant luxuries, this is not conducive building a financially stable future.
Being financially stable can reduce stress from your life as well as ensure your ability to deal with unforeseen problems in the future. Car repairs and medical bills are just a couple unwanted payments that can sneak up when you least expect them. In addition to helping out in the short term, financial stability can help you build a long and lucrative retirement. If you set goals, put something away, and monitor your spending, your road to financial stability will be much less bumpy.
Depending on where you live, the cost of supporting yourself could change dramatically. If you live in California, New York, or any other states with a high cost of living, using information like this to the best of your ability can allow you to get the most out of where you live.
One piece of advice for young adults trying to build their financial future is to set goals. Setting goals can give you something to strive for and help keep your finances on track. Setting short-term goals, like having enough to pay all your bills by the end of the week, for example, can help you avoid frivolous purchases throughout the week.
In addition to your short-term goals you should also be setting longer-term goals. For instance, striving to pay off your student loans in two years. Having a long term goal helps you be careful with your money as well as develop a plan to achieve that goal. If you are successful at achieving your short-term goals it will be easier to reach your long-term goals.
Put something away.
While it may seem ridiculous at the moment, some day you will be old. If you have the means to save any amount of money at all, you should try to. Saving a little money can be really useful when an unsuspected problem occurs, like a broken down vehicle. But more importantly, saving money now can help build long term wealth that you can retire with.
One great way to save a little bit of money is to open a 401K or Roth IRA retirement account. Contributing even just a little money to these each month can end up netting you a significant amount of money with interest over time.
A final reason to put some money away is taxes. They have to be paid every year and saving money can help avoid extra stress. Living in an area with a high cost of living like California has the potential to tap your bank account when you need money to pay your taxes. Look for sites that will help you find the best San Diego CPA–or whatever Californian city you live in–to make sure you don’t pay any more than you need to.
Monitor your lifestyle.
Setting goals and saving money can be difference makers when it comes to building financial stability and saving for your future. However, just as important can be monitoring your lifestyle on an everyday basis. Live within your means and don’t allow living a certain lifestyle to take over your expenses. If you must borrow money don’t do so in order to keep up a lifestyle, do so in order to finance investments.
Although you may have a lot of extra money now, blowing through it can be a mistake when you need something later.
This article is featured on behalf of Jenna Brown.
- Make a list of all of your bills, including your mortgage or rent, transportation, groceries, child support. Include debt payments, such as student loans, credit cards and car payment.
- Figure out your total monthly income. Include all income that you can use to pay your bills each month. This would include your paychecks, dividends from stocks, child support payments, gifts and inheritances and deferred compensation from a settlement or retirement plan.
- If you are paid hourly, track your salary for a few weeks and calculate the average. This will give you an average monthly income figure you can use when creating your budget.
- Subtract your expenses from your income. This will tell you whether or not you are overspending. If you are spending more than you earn, then your need to prioritize your expenses.
- Make a plan to significantly reduce your spending. Reducing how much you spend will leave you with more money at the end of the month that you can use to get out of debt or to build an emergency fund.
Save on transportation expenses. According to AAA, the annual cost to own and operate a car is over $8,000 per year. Gas, maintenance, car payments and insurance contribute to this figure. Put some of this money back in your pocket by selling your car and using public transportation. If you really need a car to get somewhere, use a rideshare service like Uber. If you don’t want to sell your vehicle, reduce how often you drive it by carpooling.
Lower your utility bills. The average household spends approximately $2,200 per year on utilities. Most of this is on heating and cooling. Find ways to improve the energy efficiency of your home to reduce utility costs. Replace incandescent light bulbs with more efficient compact fluorescent light bulbs (CFL) or light-emitting diodes (LED) bulbs. Install a programmable thermostat to reduce heating and cooling use when nobody is at home. Unplug all of your devices when you’re not using them. Air seal your home, and lower the temperature on your hot water heater.
Reduce spending on entertainment. Many people see this as the obvious first place to start trimming expenses. It’s easy to cut entertainment costs without negatively impacting your lifestyle. Cancel your gym membership, and reduce or eliminate your cable bill. Replace these forms of entertainment with less expensive ones, such as running or biking in the park, borrowing books and movies from the library, and attending community cultural events. You can also cancel newspaper and magazine subscriptions and read those items at the library. Eliminate other paid services such as Hulu, Amazon Prime, or Netflix.
Save money on food. Make a meal plan and cook your meals at home. This will keep you from getting take out for dinner. Also, you can pack leftovers for lunch the next day instead of buying lunch at work. Use coupons and buy generic instead of name brands. Purchase non-perishable items in bulk for a lower unit price. Start your own garden to give yourself a steady supply of fresh vegetables.
Cut your insurance bills. If you are healthy and don’t require frequent doctor visits, change your health insurance to a high-deductible plan. Shop around for better rates on homeowners and auto insurance. Sometimes bundling these two can save you money. Consider purchasing term life insurance. It is a less expensive option than whole life or universal life insurance.
- For example, suppose your rent payment gets debited to your account one or two days before your paycheck is deposited. Having that buffer means that your account won’t end up overdrawn, and you won’t be charged any overdraft or returned check fees.
- You should have this buffer even if you are in credit card debt. Keep the size of your buffer only as big as necessary. Channel all of you other extra income to paying down the debt.
- It can be hard to save up that buffer if you are living paycheck to paycheck. But you can do it if you cut down your expenses or find a way to earn a little extra money on the side.
- Keep your emergency account separate from your checking account so that you’re not tempted to use it.
- Compare interest rates at different banks. Your local bank may offer as low as .25 percent interest on a savings account. Online savings accounts offer much higher interest rates because they don’t have to pay the overhead expenses of maintaining a physical location.