If you are like most people, and young, you aren’t keeping tab on your spending. After paying bills, buying groceries and purchasing a few basic items, what is left can barely be considered as savings. The idea of setting money aside for future use may seem like an alien thing to do.
But, guess what? As mentioned above, you are not alone. This might lead you to think that there is plenty of time to get your financial life in order. Unfortunately, there is no time-frame or guarantee that things will get easier with time. Because financial management is all about being disciplined. It is a skill that will not necessarily improve with age but with planning. As you grow old, your obligations in terms of finance will only increase, not otherwise.
The best part however is, if you are listening to your financial woes, chances are you may be able to overcome them later. For this to happen, you need to set in motion a few habits that will put you on track for a healthy financial life. And even better, you don’t have to count every penny, stretch every dollar or spend huge amount of money on experts and advisers. But you are required to put reasonable effort in tracking your spending to begin with.
At this point, many of you probably have one or more specific financial goals in mind. It could be anything ranging from going to college, buying a house, buying a rental estate or retiring before 50. You may also be dreaming of the day you would become financially free and not have to worry about living paycheck to paycheck. Well, all these dreams can be turned into reality if you are consistent and disciplined. The first step is to put a tag on each of these dreams that you are planning to realize over the years. For instance, you may want to buy a house, own a car or pay off student loan in the long run. Calculate the dollar value for them. The median price of a home for first-time buyers is about $160,000 in the US. You may have to put down a certain amount of money or if you have enough savings to cover more than the down payment, go ahead with the purchase. To own a car, unlike house purchase, the down payment requirement is mostly absent. Many car dealers will sign you up for as little as zero upfront cost. For student loans, plan for a ten year or less repayment plan starting from the moment you leave school.
Similarly, plan on paying off credit card debt if you have one. The interest rate on most credit cards will be typically 15 percent or more. If you owe $5,000 in credit card, it will end up costing you more than $6,000 in interest alone by the time you plan to pay off two decades later. Additionally, make room for emergency cash when you are on a saving mission. A rule of thumb is to save for at least six months of living expense although this might vary depending on your lifestyle and other factors.
Now that you have figured out what your goals are going to be for short-term or long-term, it is time to build a clear-cut road map to achieve those goals. Certain websites and online tools will tell you how much you need to put aside each month in order to reach your goals. If you are already a good saver, you may not get surprised by the number. If saving is not in your familiar territory, you may have to look for other ways to reach your goals, like extending the time to make it happen.
Saving will also feel like an arduous task for many. For people who are literally living paycheck to paycheck, setting aside any amount of money would seem impossible to do. The fact it, you can save no matter what, even if you think you are not making enough to get by. The trick is to tweak with your lifestyle habits. Make saving a reality by having a bigger understanding of your spending habits. You may have to forego that daily latte from your favorite coffee shop or weekly movie rentals on Netflix.
The best way to gain control of your finance is to learn where the money goes, every penny of it. For this, keep a detailed spending dairy, offline or a notebook. The act of writing down each and every store visit and the corresponding dollar spent there will give you an idea of what are needs and what should be considered as wants. If you are doing this for a month, you may be able to do for more months while saving a good amount of money by the end of the year.
Remember that when you are organized and your life is in order, it is easier to gain control of your financial health. If you are like most people and don’t know what receipts and bills to keep and which one are worthy tossing out, the best way is to hold on to 7 years of everything. Make room for all of these things in a file, folder, bin or other organizing containers. If space is a constraint, consider storing them as soft copies through Dropbox or OneDrive. For important documents like tax returns, birth certificates and legal items, keep both hard copy as well as soft copy.
Last but not least, learn from others about how they manage their finances. At the end of the year, you will also learn how much you spent on each category, either through writing them down or online tools. If you and other household members are having an argument about money, these tools can be an objective way to see where your money is actually going. You can also find tools online to get a snapshot of not just your spending habits but investments and retirement account status as well.