The 10 (Financial) Commandments

I was suggested to do a blog post on how I manage to budget my money and afford all of the things that I do at such a young age. Today, I’m going to tell you how I do it, and give you some tips on how you can budget your money too!

Get a job. This is pretty self-explanatory. You can’t earn money or budget money if you don’t have any. It doesn’t have to be anything extravagant, just something that will allow you to bring in some income on a weekly or biweekly basis. A majority of my jobs have been in food service. While I was home for the summers during my enrollment at the University of Georgia, I made minimum wage working at McDonald’s; I worked about 40 hours a week until it was time to go back to school. While away at college, I worked part-time  in the dining halls making about $8.00/hour . Suffice it to say, I always made sure that I was employed somewhere. And throughout nursing school, I worked in both food service and retail, at one point at the same time.

The thing about employment if being consistent. By consistent, I mean being employed at a job for a recommended 6 months or more. Future employers, especially in your prospective career field, will look at how long you have/had been at each of your previous places of employment. It goes without saying that if you “job hop”, then you’re not as reliable of an employee, and your employer will certainly look negatively on that. Also, if you’re new to the “building credit” world, banks and credit unions take into account how long you have been employed at your most recent job when getting your approved for loans, so be careful!

Set up an account. Whether your job does direct deposits or physical checks, it doesn’t matter. Set up a checking account and a savings account at your preferred bank. You need a secure place to leave your money once its been earned. If you don’t know how, walk into your bank and they will be happy to assist you. I set up my first bank account in December 2010 with Wells Fargo, so I was 16 years old. I had what was called a Teen Account. With this particular account, I could deposit money into my checking or savings accounts. Every time I swiped my card, $1.00 from my checking account would be transferred to my savings account. I didn’t have a job until I was 17, so the only money I had coming in was from relatives for birthdays, holidays, etc. In any case, that was the beginning of how I started to manage my money.

3. Save. This can be one of the toughest things to do, especially if you’re like me and you like nice things…or have to pay bills. Here’s what I suggest: 20% of your monthly income should go towards financial priorities, like debt payments, retirement contributions, and savings. As a nurse, I’m making significantly more money now than I ever have before. Even before though, I was still spending way less than I was earning every pay period. The key is routinely setting aside money to save every pay period and putting it in a separate account, not once a month or every other month, but every pay period. Once you get into the habit of saving, it becomes easier to do.

As a nurse, I set aside a significant amount of money towards my retirement. Approximately 18% of my biweekly income goes into a retirement account that cannot be touched. Calculating the money that I put in and the money that will be matched by my employer, I will literally be a millionaire by the time I’m 52, and that doesn’t include mounting interest. Crazy, right? The point is that saving is important. And even if you don’t put in as much money into your retirement as I have, still put some away, even if it’s a particular dollar amount . Once you get older, you’ll want to have money to live off of. You’re never too young to think about the rest of your life.

Become financially knowledgeable. It’s unfortunate how little our generation has been taught on simple financial things, like the definition of ‘interest’ or how to write a check. Subsequently, this deprivation gives us no option but to learn on our own or by trial and error. Either way, it must be done. There are tons of young adults out there in debt up to their eyeballs because they don’t know the consequences of using a credit card, or don’t know whether to by a used car or a new car when comparing interest rates. It’s just so important to become financially literate. I can give you a few pieces of advice on what I have done to become financially literate and how I apply them to my life now:

  • If you have a credit card, use it responsibly. I cannot stress this enough. Many young adults think that having a credit card enables them to swipe as many times as they choose and pay all that they owe at a later date.
    • As a rule of thumb, spend only 30% of your limit. For example, if your credit card limit is $3,000, only spend $900. Whenever the credit card payment is due, pay it in full. Both of these actions will exhibit to the bank that you are responsible in spending and can keep up with your month payments. Inevitably, your credit score will go up.
    • Only use your credit card on certain things. When starting out, I suggest starting with just using it for gas and food. These will usually be smaller payments and will get you used to paying your monthly bill with ease.
    • There is no reason why a young adult should have multiply credit cards. Use one to avoid overspending and accruing debt.
  • Take care of your obligations first. I can’t speak for having a family of my own, but take care of the things that need to be taken care of first, then use the rest of the money for lesser obligations. For instance, I schedule the dates that my bills are due on my phone, and anticipate how much of my money that will be spent on those things. Then, I know that I can budget the rest of my money on other items that aren’t quite so urgent.
  • Don’t take on everything at once. New graduates especially are eager to move away from their parents and start living completely separate lives of their own. However, that’s not always the smart thing to do. When you’re just starting out “in the real world”, it may take a moment for you to get on your feet. Don’t think that just because your friend is a homeowner at 23 means that you have to be too. Everyone has their own situation. Start little by little, tackling a bill or two. Then, as you save more money, you’ll be more financially stable, and will be able to handle more responsibility, such as a new car or a new home/apartment. There’s no shame in hanging on to your parents for a little bit longer (if they don’t mind, of course).
  • Live below your means. I have a lot of nice things because I can afford it. Knowing what you can and can’t afford is key to being financially stable. I make it a habit of not spending more than what I make every paycheck. Naturally, that may change when I take on more responsibilities down the road, but for now, it works out perfectly. When in doubt, go by the 50/20/30 rule: 50% of your monthly income should go towards essentials (food, housing), 20% should go to financial priorities as I discussed above, and 30% should go to lifestyle choices (nights out, Netflix).

 

There is so much more that I could say on how to be financially stable, and being in my early 20s, I certainly don’t know everything there is to know. But, I will leave you with 10 (financial) commandments as tips to ensure that you are on the right track to a wealthier, more secure you:

The 10 (Financial) Commandments

1. Take risks. You may take one job over another and find it doesn’t work out. But when you’re younger, you have the ability to do that. Taking the more suitable chance may turn out in your favor down the road.

2. Establish a budget. Without a budget, you risk overspending on discretionary items and undersaving for important big-ticket purchases.

3. Get insured. Accidents truly happen everywhere, and as an adult, you are responsible for protecting yourself and all your stuff from it. When horrible things happen to you—say, a trip to the emergency room or a fire in your apartment—insurance may save you from shelling out thousands of dollars all at once.

4. Make a debt-repayment plan. Debt is a reality for most young adults. But letting it linger—or, worse, grow—can set you back for years to come in the form of greater interest payments and lower credit scores. For your student loans, be sure you have a good repayment plan in place. Work out a plan to tackle your credit card debt, too. Hopefully, being so young, you haven’t had time to bury yourself in much. But if you’ve been quick on the swipe, your first step is to establish a budget and rein in your spending. You should then start paying down debt on your highest-rate cards first.

5. Build an emergency fund. Insurance alone won’t cover all of your problems. You still need to have liquid savings on hand as an added precaution. Some call it a rainy day fund. Stash enough to pay three to six months’ worth of expenses in a safe and easy-to-access savings account. Contributing to your fund should be a top priority in your budget. Aim to put away at least 10% of each paycheck until you reach your goal, and add a boost any time you luck into some extra income, such as a bonus or birthday gift.

6. Start saving for retirement. Though it may seem forever away, it’s more important than ever for to focus on this savings goal as soon as possible. The sooner you start saving, the better. Because of the magic of compounding, time will fatten up your retirement amount. For example, if a 25-year-old saves just $100 a month, assuming an 8% return and quarterly compounding, she’ll have $346,039 by the time she turns 65. Don’t think of saving for retirement as subtracting money from your paycheck or checking account. Rather, consider them automatic payments to your future self. If you participate in your company’s 401(k)—as you should—your contribution can be automatically deducted from each paycheck before taxes. It hurts at first, but you adapt.

7. Build up your credit history.You’ll need to take on some debt and show that you know how to manage it well in order to build up your credit history and earn a good credit score. This number, along with the credit report on which it’s based, is the key to many milestones in your financial life. A good score means lower interest rates on credit cards and loans. Landlords may consider your score before offering you a lease. And employers might take a look at your credit report during the hiring process. Unfortunately, because you’re young, you’re at a disadvantage. The length of your credit history counts for 10% of your FICO score, the most widely used model. But a lot of your score, 35%, depends on your payment history. So you can easily raise your financial grade by paying all your bills on time. Another 30% of your score is based on how much you owe, calculated as a percentage of your available credit. In other words, maxing out your credit card every month is bad, even if you always pay off the entire balance. Be sure to use your card sparingly. “FICO high achievers,” who score at least 750 on a scale of 300 to 850, typically use just 7% of their available  credit.

8. Start becoming independent of your parents. In your twenties, the main goal is becoming self-sufficient. Obviously, financial independence starts with a job. You also ought to cut the cord by getting your own insurance , car, cell-phone plan, home, everything. But of course, as I stated before, this may take some time. If you do need financial assistance from your parents, approach them maturely and responsibly.

9. Clean up your online presence. Like it or not, your social media activity is viewable by the entire Web-surfing world, including all your current or potential employers. Get your digital act together by searching for yourself online. Check Spokeo.com and Pipl.com, as well as the obvious Google, to see what’s already out there, and double-check your privacy settings on Facebook, Instagram and other networks to make sure you’re not adding to the mix unintentionally. For example, your LinkedIn account should be a glowing representation of your professional potential. And if you’re an expert on a certain subject, you can show off your knowledge via Twitter, Tumblr, WordPress or other sites.

10. Get your key financial documents in order. You—not your parents—should have your birth certificate, Social Security card and other official IDs in your possession. Also keep a list of all your banking and investment accounts, household bills and insurance policies, along with any online usernames and passwords. Be sure to get details on any funds your parents might have administered for you. Store all this important information in a secure place, such as an actual safe, and make sure someone you trust knows where it’s located. Other documents you might need to keep in mind: your apartment lease, roommate agreement, and car registration and title.


 

I hope that today’s post was helpful to someone! Stay tuned for Friday’s post

 


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