On the surface, money management seems easy: Spend less than you make. But as a recent college graduate, I’ve come to learn there’s much more to it. As I begin my working career and adjust to life after school, I’ve spent a lot of time learning more about personal finances, budgeting, spending and saving.
Here are some of the best practices young adults should know as we enter a new stage in our lives.
By the time you finish college, you’ve likely created at least a basic budget before. If not, don’t panic. Getting started is easy, and you can download our budget sheet and use it as a guide.
A budget is an estimate of your income compared to an estimate of your expenses. However, your budget has to be as specific as possible. This will help you gain a clear understanding of where your money comes from and how you spend it, which will provide direction, identify wasteful spending and allow you to adjust your budget more easily.
If you’re making a budget for the first time, try segmenting your budget into some basic categories:
- Health care and medicine
- Electricity and water
- Internet and cable
- Delivery services
- Subscriptions (streaming movies or music)
- Work-from-home expenses (supplies, technology, furnishings, etc.)
If you’re fresh out of college, or your financial situation has recently changed, consider how the expenses within these categories may have changed, too. You may need to build in a category for paying down student debt, or maybe you can eliminate expenses like textbooks. Then, take note of increases and decreases in spending. For example:
- Increase: Delivery services for food and groceries
- Decrease: Gas
Think about why these changes happened. In my experience, I’ve had groceries delivered to my home more often, meaning fewer trips to the grocery store and less gas used.
When you make a purchase, no matter how small, you should track it against your budget. Don’t worry about toting around a pen and paper, though. You can create a spreadsheet on your laptop, make a list on your phone’s “Notes” app, or use any number of other digital tools and apps designed to help manage your purchases.
The increased use of plastic and digital payment methods instead of cash and the risks of being in public during a pandemic have made trips to the bank few and far between. Meanwhile, most major banks and lenders have stepped up their online presence, and many have introduced or improved mobile phone apps.
Whether you’ve just opened a bank account or you’re managing existing accounts, there’s never been a better time to do your banking online. You should be able to do a few things online or on your phone, including:
- Deposit a check
- Transfer funds between accounts
- Pay bills and set up automatic payments
- Track spending and balances among accounts
- Monitor fraud alerts and get notifications when you are charged
Keep in mind, it’s important to use a strong, unique password and take advantage of security features such as two-factor authentication to better protect your sensitive information.
Even when you’re following a budget, it can be easy to overspend, especially when you’re filling up a digital cart. Being on your own for the first time can be daunting, and the number of factors that influence when (and if) you should make a purchase may surprise you. Here are a few things to remember when spending your hard-earned money:
Decide what you need. At a glance, this seems obvious, but comparing “wants” from “needs” when reviewing your spending habits is a critical part of living within your means. For many of us, our wants and needs have changed in some ways since the onset of the COVID-19 pandemic, so now is a great time to reassess.
Consider extra costs. Although free shipping is common, deliveries and online purchases are often accompanied by additional charges like convenience fees, added taxes and tips for delivery drivers. While these charges aren’t a surprise, they can add up quickly. Next time you order delivery, compare the subtotal of your food items to the final total to see how much you’re spending on the service.
Audit monthly billing statements for recurring charges. This isn’t as scary as it sounds. When reviewing your spending habits, simply take note of your recurring payments. You may notice a change in the amount you’re paying for a recurring service, or even that you’re paying for something you’re no longer using, both of which would impact your budget. Some banks will even alert you to changes in recurring payments that you can manage manually.
Don’t be afraid to bargain hunt. There is no shame in using coupons. If you’re like me, you probably get dozens of sales promotions and coupon codes sent directly to your inbox each week. Keep an eye out for the deals that fit your needs, and take some time to browse multiple sites to find the best deal if you’re shopping online. Chances are doing so will still be a more efficient alternative to an in-person shopping trip.
If the events of 2020 taught us anything, it’s to expect the unexpected. While we hope to never encounter a financial emergency, being prepared is the key to successfully navigating one. How much you set aside for emergency purposes will depend on your income and expenses, so building emergency savings into your budget is a plus, and every cent counts.
Once you’ve set aside your emergency savings, you can start saving for your future in a number of ways. Early in your career, a traditional savings account may be all you need. Each time you get paid, you should move up to 20% of your take-home pay into a savings account. If you can’t afford that right now, try to save as much as you can. And it’s never too early to think about investing more in long-term savings opportunities, like contributing to your 401(k).
Navigating a new beginning in your life will present its challenges, but managing your finances well and taking advantage of new tools and tech can also create opportunities to help guide you toward financial independence and stability.
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