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Take That First Step Towards Financial Success With These Tips From A Professional Personal Finance Advisor
Money can be a really intimidating topic for those of us who are just starting out or even those in their thirties trying to make ends meet.
It can be hard enough to pay the bills month-to-month, let alone having the resources to set up an emergency fund or start thinking about retirement savings.
But take heart!
There’s no need to be scared of finance, it all starts with taking one small step.
Erin Lowry is here to show us how – with her expert guidance on personal finance, you can start to understand finances and become financially successful, no matter your background.
She’ll help you understand why budgeting isn’t one-size-fits-all and how much money you should actually save up in order to cover emergencies.
Taking her advice will allow you to take fear out of finance and live a life of financial security!
Money Can Be Stressful, Confusing, And Scary For Millennials – But Knowing How To Manage It Is The Key To Achieving Fulfillment
Money is a scary subject for many in their 20s and 30s, so much so that it’s holding them back from achieving their desired lifestyle.
This was made apparent when Erin, the author of Broke Millennial, saw how her friend Lizzie’s relationship with money was preventing her from pursuing her dream career.
Lizzie had come to New York City with dreams of launching a successful creative career, but instead found herself in an uninspiring corporate job she wished to escape from.
When Erin asked why she wasn’t leaving if she had the opportunity, Lizzie responded by saying money gave her anxiety.
She simply avoided looking at her bank account and hoped there was enough cash to make it through the month.
This fear of money can be quite common with millennials and stands as an obstacle for reaching one’s greatest potential.
It could mean giving up on life experiences because of income constraints or splurging on those experiences now only to live paycheck-to-paycheck later.
Uncover Your Roadblocks To Change Your Relationship With Money
If you want to change your relationship with money, the first thing you need to do is uncover any hidden roadblocks that may be holding you back.
These roadblocks often originate in childhood, and so by going back to your childhood experiences you can begin to understand why you behave the way you do when it comes to managing money.
You should start by reflecting on how your family talked about money when you were growing up, and on how you acquired money as a kid – whether it was from an allowance or from a job.
Then take note of your financial anxieties and fears – such as worries about running out of money or staying in debt forever.
Looking deeply at these issues will help give you clarity about why it is difficult for us to make positive financial choices.
Once this understanding is achieved, it becomes much easier to take the necessary steps towards financial freedom.
Two Different Approaches To Taking Control Of Your Money: The Cash Diet And Tracking Every Last Penny
When it comes to budgeting, there are two basic approaches: cash diet and tracking every last penny.
With the cash diet approach, you switch as many of your financial transactions as possible from plastic to actual cash.
The main benefit of this approach is that research shows that people tend to spend less when they go digital-free.
Plus, you don’t have to worry about credit cards and monthly bills.
The other method of budgeting is the track every penny system.
This involves keeping a record of all your transactions in a spreadsheet with columns for date, item purchased and total cost – down to the very last cent.
Sure, it might sound extreme but it’s perfect for those who want to pinpoint their spending patterns and redirect funds in better ways.
For example, if you discover that you’re spending close to $100 on bottled water from Starbucks every month, then you can buy a refillable water bottle instead and save $90 every month!
With Strategic Budgeting, You Can Balance Flexibility And Security In Achieving Your Financial Goals
When it comes to managing your money, using realistic budgeting percentages can be an incredibly helpful way to achieve both your short-term and long-term financial goals.
For example, the ideal proportions of 50 percent for fixed costs, 20 percent for savings and other long-term investments, and 30 percent for flexible day-to-day spending, might seem unattainable if you’re a millennial living in a major city who pays half their salary just for rent.
In that case, it’s best to adjust percentages according to your own particular situation and slowly move towards achieving the original goal.
A good rule of thumb is not to allocate too much or too little of your budget on each category; for example, allocating 40% of your budget toward fixed costs would hinder any progress made toward long-term financial goals like saving enough money for a home or retirement funds.
Take Dwight, a fictional example – living in New York and earning $45,000 per year – as an example: after accounting for tax deductions and retirement funds contributions his monthly income is $2,650 minus $1,350 being spent on rent & transportation costs + another $250 dedicated to student loan repayments which leads him to spend 60% of his total income on fixed costs leaving only 40% available to be split between flexible spending (30%) and savings & investments (20%).
Dwight had realized he could allocate 20% out of what remains -$850 – towards his longer term financial ambitions so he compromises by setting aside just 10% resulting in him having $800 a month available for food & day–to–day expenses.
It’S Time To Upgrade Your Savings And Get A Better Interest Rate With An Online Bank
Looking to get a better interest rate on your savings? Then it’s time to switch to an online bank!
This can be a great way to increase your return on investment as internet-only banks usually offer much higher APYs than their brick-and-mortar counterparts.
It’s as simple as searching “highest-interest savings account” online and reading up on the fees and customer reviews to make sure you find the right bank for you.
While 20 cents may not seem like that much for $2,000 held in an account with a tiny APY, the same amount with 1% APY yields $20 – that adds up quickly!
So don’t wait any longer; switch to an online bank today and start earning more from your savings!
It Is Possible To Benefit From Credit Cards Withoutbeing Exposed To Risks By Paying Off The Full Balance Every Month
Credit cards can be a great way to build and improve your credit score.
This can come in handy if you want to borrow money one day to purchase a home, for example.
However, it’s important that you take the time to understand how using credit cards works so you do not end up with mounting debt that is difficult to pay off.
The key message is: when you use credit cards, make sure that you never charge more than you can afford to pay off in full every month and be sure to pay your balance in full each month.
This way, you avoid late fees and exorbitant interest rates.
Think of credit cards as a one-month loan.
You get access up to an agreed monthly limit with which you make purchases and at the end of the month the credit card company sends you a bill with two numbers – total amount due and minimum amount due.
Paying the total amount clears the balance while paying just the minimum dues means rolling over the rest of your debt into next month plus interest charges imposed by the credit card company on top of that.
Interest rates may be as high as 20% per year or even higher!
Pay Yourself First To Avoid Falling Into A Debt Trap
When the unexpected happens, you don’t want to end up stuck in a debt trap.
This is why it’s important to pay yourself first.
Saving money up front can help you avoid racking up debt and help you get back on your feet if something does happen.
The good news is that it doesn’t have to be a huge effort; even making small changes to your spending habits and putting that money into savings can make a big difference.
For example, skipping out on one $10 craft cocktail or a couple of $5 coffees per paycheck and putting that money aside quickly adds up.
Once you’re comfortable with that, you can start really increasing the amount you save over time.
Talk to your HR department about setting up automatic transfers from your paycheck directly into a savings account, so there’s no chance for spending it before it gets put away – because when life throws curveballs at you, the best thing you can do is prepare ahead of time by making sure that saving is part of your budgeting plan.
The Importance Of Having An Emergency Fund To Beat Financial Emergencies
When you’re preparing for financial emergencies, it’s important to be realistic about your situation.
The amount of money you need to save up in an emergency fund should be determined by your current financial situation.
For example, if you’re a debt-burdened millennial who is underemployed, then the classic advice of saving six months’ worth of living expenses may be out of reach.
In this case, saving a minimum of $1,000 will give you a cushion if bad luck strikes.
If other family members or pets also rely on you financially, add at least an extra $500 for each person in your care.
If you don’t have any debt or its manageable with your current income, then the typical suggestion to save up enough funds to cover six months of living expenses is probably achievable.
Just figure out how much cash goes towards essentials like rent and groceries each month and multiply that by six—that is your target number.
Wrap Up
The Broke Millennial Book is a valuable resource for anyone looking to improve their financial situation.
It explains why so many millennials are in a cycle of living paycheck to paycheck and provides actionable advice on how they can break out of it.
The key takeaway? Have a handle your finances.
This means budgeting your money by percentages, using the right kind of credit card, setting up an online banking program, creating an emergency fund and standing up for yourself when it comes to awkward money situations.
Only by taking control of your finances can you start moving towards financial freedom.
It’s not always easy but if you start today, you’ll soon be well on your way.
