You know the excitement when you land your first job. Getting your own income feels like a huge first step towards independence. It feels liberating not having to rely on others anymore financially. Yet, at the same time, you realize that you have to manage your personal finances from now on.
This might be quite daunting for first jobbers. With everyone flashing off their lavish lifestyle on social media, there’s a huge temptation to follow the same path. But at least, you know you shouldn’t—that’s why you clicked on this article. Be financially responsible and save money with these five simple tips we’ve curated for you.
Track your expenses
Have you ever thought to yourself, “where did all my money go?” You may feel like you don’t spend that much, yet by the end of the month, it’s just vanished into thin air. This is where tracking your expenses becomes important. It might sound like a tedious task, but expense tracking is a good financial habit to build. To do so, simply take notes of your every spending on a daily basis.
There are a lot of options on how to track where your money goes. If you’re a paper-and-pen kind of person, dedicating a notebook to this can be a good idea. Another option is to download one of many financial tracker apps on your phone. Need more flexibility to organize your data? You can opt for Excel or Google Spreadsheet for that.
There are little expenses that may slip out of our attention. By doing this, you will see everything you spend money for and how much you spend for them. After a month or two, it’s possible to analyse your general spending to make better financial decisions afterward. From here, you can plan your budget for the upcoming months.
Make a budget
People often fall into the trap of spending money anytime without thinking. After they get their monthly paycheck, their income just comes and goes away in a matter of days. This is due to their lack of financial planning (or their inability to stick to it, but that’s for another discussion). Hence, it’s extremely important to plan a budget for every kind of expense you need to make.
This technique is great for you who tend to spend your money in an impulsive manner. Even if you don’t, making a budget is super helpful to keep your personal financial health on track. If you do it right and stick to it, budgeting will save you from headaches at the end of the month.
Base your monthly budget on your net income after taxes and insurance. Then allocate that number into three main categories: living, saving, and playing. The percentages may vary for each group, depending on your condition and personal preference. But to begin, you can divide it into a 50:30:20 ratio. Don’t worry, you can always readjust it later on.
Living
Put expenses of your necessities in this category. Things like housing, transportation, grocery, and internet fees are usually fixed costs that stay the same every month. When you get your salary, put aside half of the amount and list down what you need to pay off. Ideally, it would be enough to support a decent lifestyle.
Saving
Living paycheck to paycheck is something many people do, yet actually wouldn’t want to. So, take your first step to better manage your finance by creating a saving budget. Set aside about 30% of your total income for you to save. Motivations may vary; you might be saving for a brand-new laptop, a dream car, or just in case of an unexpected rainy day. Yet, at the end of the day, it’s always relieving to have some spare money in your bank account.
Playing
Having a healthy financial habit doesn’t mean you need to torture yourself. You work hard to earn some bucks; you deserve to enjoy some of it too. Rewarding yourself is a great way to prevent yourself from excessive stress. The important thing is to keep the spending under control. You can allocate 20% of your net income for your playing budget.
Focus on paying off existing debts
As previously mentioned, saving up is just that important. However, if you have debts, you might want to put saving aside for a while and start paying the debt off as soon as possible. In the case of a student loan, learn about the mechanism on how to pay, the duration of payment, and interest rate, if any. The same goes for any other kind of debt. Calculate how much you can allocate money to pay it off every month without having to live miserably.
By prioritizing this, you will remove a huge burden off your shoulder. Debts left unpaid will add even more problems, especially those with high-interest rates. The struggle to pay it off would also indirectly teach you one thing about personal finance: to avoid borrowing money as much as you possibly can. This applies especially for consumptive expenses—you will impress no one by living a high lifestyle from debt.
See where you can ‘downgrade’
Lifestyle and personal finance are two interdependent things. If you manage your money well, you will be able to afford a decent lifestyle. Yet when you focus too much on upgrading your lifestyle and consumption, your personal finance will be messed up. That’s why it’s important to assess whether you’ve been living within or above your means.
If it’s the latter, consider altering some aspects of your lifestyle. Again, no need to strip off all the joy from your life—just manage them a little bit better than before. You can start with little things, like taking public transportation instead of spending gas money on your car.
If you constantly need your dose of caffeine, cut down your coffee shop visits by making your own coffee at home. Or even better: save money on bottled water by getting a water purifier, so, you can bring your own fresh drinking water.
Set up a personal emergency fund
Unexpected things often come at the most unexpected and inconvenient time in life. There would be times when you just need to have hard cash immediately. In financial talks, these situations are often referred to as rainy days. They can come in the form of accidents, broken vehicles, and many other unanticipated situations. For emergencies like these, you will need to have a personal emergency fund.
To begin, you need to know how much money you spend every month. Then you can follow a general rule of thumb to save for an emergency fund. If you’re financially responsible only for yourself, set aside at least six times the amount of your monthly expense. The idea is to be able to live off of the fund for some time if you suddenly lose your source of income. On the other hand, if you’re the breadwinner of your family, make it 12 times the amount.
You can explore many other ways how to save your hard-earned bucks. We can’t cover all of them in this article, yet these five tips could be a good start for your financial journey. Spend wisely and remember to enjoy the ride!