What Every 20 Something Needs to Know About Smart Budgeting
Getting involved in debt is something that is a favorite American pastime. The average twenty-something graduates from college with a huge burden of college debt. All while it’s a lot of fun to go out and do all the things that 20 something years olds do, it’s a really bad idea. Getting into huge debt can not only mess up the ability to buy necessities in the present, it can also lead to higher interest rates on debt in the future when things like buying a house or starting a family are on the radar. Here are some important things that today’s twenty-somethings need to think about when it comes to budgeting and securing a solid financial future.
1. Do Not Overspend Monthly Income
This is the first step toward financial independence and a successful life. Spending more in a month than is available in your checking or savings account is a surefire way to ensure that you run into debt problems. The process of budgeting is easier for those on a salary or those who get a set number of hours each week. Those who have irregular hours could have more of a problem estimating income. Regardless, a conservative budget is a necessity. Trimming as much fat as possible is the main goal in setting up a monthly spending plan that works.
2. Think about Alternate Ways to Make Purchases
Buying more and more stuff when the urge hits is a great way to run up debt. There are some great ways to avoid spending as much as most of your colleagues in the Millennial generation. Shopping at a big box store like Sam’s or Costco can lead to some serious savings on staple grocery items over buying them at the local supermarket. Additionally, choosing to buy glasses online over getting them at the eye doctor’s office could be an easy way to save a few bucks.
Also remember that “time is money” so sometimes its cheaper to pay for something that normally you could do yourself, but the time you save for outsourcing it is worth more than what you pay. A good travel agent is allot like that. If you are working on projects or ideas, figure out how much your time is worth and then outsource when necessary. Just make sure that your making money with the extra time and not playing video games.
Also renting things when necessary can big a good idea. Lots of times impulse purchases are based off a current need, but we don’t foresee that we won’t have that need again for a long time. Lots of creative gear for music and art is like that. Want to take a cool time-lapse photo for your new website? Rather than buying the gear, rent it out instead. You may never use it again.
I have made this mistake many times.
3. Pay Yourself First
This is the mantra of just about every financial advice guru who’s ever given a talk, written a book or had a radio or television show. Those who fail to pay themselves first will generally fail to pay themselves at all. Setting aside a bit of money from each paycheck will sometimes require figuring out some creative ways to pay other bills, but it will be worth it in the long run when it comes time to retire. Saving just a handful of dollars each day could wind up leading to a million dollars given enough time thanks to the miracle of compound interest.
4. Shop Around for Insurance
Having adequate insurance is a must. Having too much insurance or paying too much for adequate insurance is something that should be avoided at all costs. There are lots of commercials about taking just 15 minutes to save 15 percent on car insurance. It’s definitely worth it to check into this avenue of improving a monthly budget. The annual cost savings could actually run into the hundreds, and that’s money that could go toward a nest egg for financial independence.
5. Aggressively Pay off Debt
After setting up a budget, it’s immediately time to start aggressively paying off debt. Any interest that you pay today is money that cannot earn interest for you for years into the future. These dollars can certainly add up and lead to less financial independence in later years. Paying off debt as soon as possible should be the number one goal of any new college grad, and student loans should be the first to go because they cannot be discharged even in bankruptcy.
Setting up a budget is not really an exciting endeavor, but it can be a great way to ensure that you know where your money is going on a monthly basis. Avoiding debt and building up savings is the smart way to budget, and this process can help build up a sizable nest egg by your golden years.