Money and I haven’t always been on the same page. Like most 20-somethings, I have had to do a lot of research, reading, and listening to learn about my relationship with money. Like most 20-somethings, I have started with a practically blank slate when it comes to budgeting, saving, investing, and planning for retirement. Non-loaded mutual fund, dividends, Roth IRA… uhm, excuse me?
I can’t tell you how many times I have put myself in a bad money moment. Recently, I decided to take an amazing, unforgettable trip to Las Vegas and put it on the card. Granted, I immediately paid the statement balance from the trip (interest free), but that is absolutely not how I should have handled that situation.
Knowledge is power
I have been on a new kick lately, reading finance books, listening to finance books, reading finance articles, and asking others about how they handle their finances. Which, when you think about it, is not always an easy conversation. More often than not, we are more comfortable having conversations about people’s sex lives than talking about their paychecks or retirement earnings.
I’m not here to tell you that I’ve got it all figured out. What I can tell you is that knowledge is power: the more you learn the more you are going to be able to take control of your situation. Because, like most people, I have been living with the mentality that I don’t control my money, I often let my money control me. Why have I let this happen when my money is my money and I decide where it goes? Due to a serious lack of education and, most of all, awareness.
How did you spend your last $20?
If someone were to walk up to you and ask you how you spent your last $20, you might be able to tell them. You’d be able to recall your fill up at the gas station or your trip to the corner coffee-house with your sweetie and the lunch you bought at work the previous day.
But, if someone were to ask you how you spent your last $100, your last $500, your last $1000 you might find yourself in a bit of a pickle with a look of bewilderment on your face as you went back to recount all of the transactions that lead up to watching a grand walk right out of your wallet.
Math is fun!
Let’s do a little bit of math. Let’s say you live alone and pay $800 for rent. (Not uncommon where I live.) Well, look at that, there’s almost a grand right there… Now, let’s add in your car payment, about $250. This doesn’t account for the renter’s insurance and car insurance that you have to pay, let’s round that up to around $120 a month. Let’s add in internet, streaming subscriptions, utilities, maybe that’s $100. Guess who has to buy groceries? $200. You pay your cell phone bill to a popular provider. $70. Didn’t account for the extra gas it takes to drive to your aunt and uncles? $30. Decide you want to go out a few times this month for drinks? $100. Oh shoot, car registration just came due. $150. Forgot your lunch for work at couple times. $12. Gotta feed the kitty! $20 for cat food. Getting your fitness on at your favorite gym. $30. Didn’t realize that you needed to pitch in for the potluck at work. $10. Want to go and get your nails done to treat yourself. $30.
How much is all of that? Around $1,922. Oh, shoot, I forgot your student loan, that’s another $280 on average. That brings our grand total to $2,202 — well over that $1000 that we first talked about.
It’s going to take me how long to save for a house?
If you have a good job and are making around $50,000 a year, which is not the case for a lot of recent college graduates, you’re watching at least 2/3 of your paycheck walk right out the door. That is putting you in the position to save no greater than $700 a month.
So, if you are not only trying to build up a savings of six months of expenses for emergencies, plus you want to put a down payment on a house someday, it is going to take you at least five years to be able to see yourself in that position. That doesn’t account for other emergency expenses, vacations, a more luxurious lifestyle, buying clothes, buying the latest smart phone, upgrading your car, getting a more expensive apartment, or deciding to tie the knot and pay for a wedding that can cost upwards of $15,000-$20,000. So, essentially, that wedding is where your money would be going anyways, and you’d be starting from square one and you won’t be able to buy a house or even think about paying off your student loan for the next 10-20 years at the least. How’s that sound?
“But, everyone has a car loan, student loan, and credit card debt.”
When you look at the people around you, do you see a bunch of people who are in the same situation as you are? Or, people who you think are better off? Or, to make you feel better, people who wish they were in a better situation like yours?
The truth is, you don’t know if you don’t ask. I know people across the gamut. Those with tens of thousands in student loan debt and those who are debt free. Yes, that is real life for some people. They own their car. They have no student debt. Their credit cards are paid off in full at the end of every month. It’s a real thing.
Looking into the crystal ball of your financial future
What is the position that you want to see yourself in five years from now? Do you imagine paying off that last student loan payment early? Do you see owning your car in full? Do you see yourself in pictures around the world as you travel the planet of our universe? Heck ya, I do!
So, today I’ve decided to make a change look towards a different financial future. I have made the choice to cut back on buying clothes and, when I do buy them, they’re most often second-hand. I always prep my meals. Going out happens less often because I choose to cook in instead! Fun Saturday plans? Biking around the city. My cell phone bill is literally cut in half by switching to a budget provider.
Spending money on things that actually matter and bring value to your life
There are so many things that I do to make sure that I am spending within my means and am focusing my spending (not spending) on the things that matter:
- (and most importantly) Financial Security
I actually have a little sticky note on the outside of my phone (and inside the case, but I can see it) that says those six things on it, so I am forced to look at them everyday and acknowledge my financial decisions in a new way.
Decide what things are important
Just like I did, it is important to take the time to decide what you actually want to spend your money on, so you can figure out whether or not you are spending the money on the right stuff.
This means actually taking a trip inside your heart and soul and determining the things that you value most in your life. Is it having the latest smart phone? Or taking a weekend trip with your best friend? Would you rather go on shopping sprees? Or contribute to your savings so that you don’t have to worry about your car breaking down or losing your job? Shiny thing or peace of mind?
How you can take back control of your money
Now that you’ve decided what is important, it’s time to take back control.
I remember when I first started tracking just “no spend” days. Through this exercise, I realized how very few days I went without spending any money at all. But, this wasn’t good enough. I realized how often I was spending money this way, but what I really needed to do was find out what I was actually spending my money on so often.
The absolute #1 thing that you can start doing right now to take control of your money is literally writing down every cent that you spend every single day.
There are lots of ways that you can do this. Write it in a little notebook. Take them down in the notepad on your phone. Or, you guessed it, there’s an app for that! I have an iPhone and use an app called Spending. Yes, very cleverly named…
Now, I know that there are apps and web services that will track all of your spending for you, but that’s not the point. The point here is for you to start paying attention to what you are spending. By forcing yourself to write/take down your spending habits, this makes it so that you are cognizant of every penny that is flowing out of your account.
Maybe you didn’t realize how many times a week you were spending $2 at the coffee shop buying coffee ($40 a month). Maybe you didn’t realize how much that pizza delivery was costing you, even just once a week ($60 a month).
Decide whether or not your spending habits are in harmony with your values
Remember those values that you had written down earlier? Now, what you’ll need to do is compare your spending habits to your values. Can you categorize all of the things that you’re spending your money on using the values that you had come up with? How often are you spending your money on things that aren’t getting you closer to living a life of financial security and early retirement?
By going through this exercise, comparing each expense with each value, this will give you the picture of what values you are actually investing your time in, because, as we all know, time is money!
You can do it!
Yes, this is coming from a total financial noob that is still figuring her own stuff out, but I know this has helped me, so why couldn’t it maybe help you? 🙂
Taking control of your financial situation may seem like something out of a fairy tale book, but if you arm yourself with the right information and take the time to get to know yourself you will only set yourself up for success.
What are some ways that you are taking control of your finances? Have any tips for me? Sharing is caring (in the comments!)