Chances are, you didn’t learn much in school about how to manage your money once you started working and living on your own. Now that you’ve got this responsibility on your plate, it’s probably time to educate yourself about living within your means and preparing for any financial difficulties that may come your way. A good place to start is with these 5 simple tips to help you manage your money as you step into adulthood.
Track Your Expenses
One of the best ways to be financially sound is to have a clear idea of where your income goes. After all, you can’t figure out if you have enough money to get by each month without knowing what you spend. Start by keeping track of everything you buy over the course of a month, from your rent down to your morning cup of coffee. There are dozens of apps available to help you log your expenditures on the go. You may be surprised about how much of your money goes to non-essential expenses, but more on that below.
Create a Budget
After you’ve gotten a picture of how much you are spending each month, it’s time to determine if that figure is sustainable. Simple math will show which is greater, your income or your expenses, and your goal is to never be on the negative side of that equation. By using the information from your tracking, you can develop a monthly budget designed to ensure your income outpaces your expenses. Using an app or even a simple spreadsheet, you can list out every necessary monthly expenditure, then budget for discretionary spending if your income exceeds what you need to make ends meet.
Cut Wasteful Spending
Ideally, you haven’t overextended yourself on the basics like rent, insurance, transportation, clothing, and food, so the money you bring in each month should more than cover those expenses. This will leave room in your budget for extras such as entertainment, vacations, or hobbies. What you should consider stripping from your budget, however, is anything that stands out as wasteful or unnecessary when you review your expense tracking. Stopping daily at Starbucks or upgrading to a new cell phone each year can probably be cut from your budget without leaving you feeling pinched.
Start an Emergency Fund
Once you’ve tracked your spending and developed a budget, you may have noticed that there’s not a lot of wiggle room. That means that if an emergency occurs, you could find yourself in a financial bind. For most people, it’s a wise idea to set aside money each month for unexpected events like a job loss, major medical issues, car trouble, etc.
The rule of thumb on emergency funds is to save up at least 6 months of expenses. Use your budget to determine how much you can sock away monthly while still paying for routine expenses. Placing this money in a separate account, ideally one that earns interest, will help you keep track of how much is available. It may also help you avoid the temptation of dipping into this fund when it’s not really necessary.
Build Good Credit
By sticking to a budget and setting emergency money aside, you’ll be taking smart steps to avoid going into debt. That being said, there will probably come a time when you need to make a major purchase that needs to be financed, such as a car or a house. To do so, you’ll need to demonstrate that you won’t be a risk to creditors who offer you a loan.
Start by making sure to pay all of your bills on time, as even your utility companies and cell phone carrier report your payment history. Apply for a credit card with a low interest rate and use it sparingly, just enough to show you are a responsible borrower. It’s also a good idea to routinely see where you stand by accessing your free credit score. That way you know what your credit history will look like to lenders before you apply for a loan.
Managing your money shouldn’t be a struggle. Just by taking some simple steps, you can ensure that your expenses aren’t outstripping your income while you plan for a secure financial future.