There is never a bad time to sit down and think about your budget or financial goals. With 2020 starting off in a way that NO one expected, I felt it appropriate to share this blog post with you now. In a time when many are stressed out about our mental health, physical health, relationships, and finances I find the best thing to do is to stop and make a plan. It’s time to think about financial goals – retirement, vacations, and splurging, as well as ensuring that you’re not taking on the additional stress of living paycheck to paycheck.
These were all things that I thought about early on as a student and gratefully, have translated into healthy spending habits into adulthood. There is so much advice out there, but honestly, I figured why not keep it simple and outline some of my favorite tips for you! Disclaimer: I am not a financial advisor (I know, you’re surprised). I have had an advisor since I was a resident however and have learned so much over the years that has helped me be less anxious about finances in general.
Creating an Actual Budget
This does not need to be hard. How much money do you make either in one month or every two weeks and where do you need to spend it? How much goes towards rent, groceries, and utilities? How much goes towards days off and free time activities? It’s really time to evaluate how much money is going out and coming in each month. There are many awesome, free budgeting apps to help you get started! One of my favorites is EveryDollar! I used this religiously as a resident. I’m more lax now because things aren’t changing as much as they were then, but I would totally recommend it.
The 50-30-20 Rule
I heard this rule in a podcast once and it really resonated. Plus, it makes budgeting easier if you’ve now downloaded an app, but don’t know where to begin! Basically, 50% of your income should be going towards essentials. The roof over your head, food on your plate, water, warmth, etc. Then, 30% can be allocated to your fun money. Anything you want from those nights out for dinner and drinks, new Sephora finds, or a new gym outfit! Lastly, 20% goes into savings. Whether that’s your emergency fund, vacation fund or even going towards debt repayment. That last 20% is so important to figure out!
Update and Revise Your Budget Often
Once you create a budget, nothing is set in stone. If you see that your rent takes up most of your income, it’s OK to look for a new place and make your life more affordable in other places. Likewise, it’s ok to notice that you’re spending WAY more than you should be on eating out and allow yourself to say “no” to drinks out more often! I know, growing up sucks! On the flip side though, if you take on a roommate or begin living with your partner, you’ll find that you maybe have less (or with the S/O, maybe more especially if his name is Chris!) expenses! Make sure you adjust your budget accordingly.
Easy on the Plastic
If you don’t NEED to use a credit card, try to avoid it. I know, some payments need that but instead, look to options like KOHO (where are my Canadians at?). Now that we are in a land of COVID, cash is becoming less utilized. KOHO is a prepaid credit card that’s reloadable but works like a Visa. You can transfer money from your bank account to your KOHO account and use that for all of your online shopping! This is such an easy way to stay on track and not let credit get the best of you. Credit scores are necessary, but be wise about it! Plus, KOHO cards come in really cute colors! In the United States, you can choose a prepaid card (Visa, Amex, etc). I will say, I acquired multiple department credit cards over the years and it has helped with my credit score, but I always pay them off in full. If that’s not happening, those cards have extremely high APRs and are not likely doing you any good.
You know when there’s a fundraiser and you see a visual of the money that’s being donated? Usually, it looks like a big thermometer filling up. Try using something like this to track your saving or debt goals! Create a poster and color in a square each time you pay off $100 towards your student loans! Or have the thermometer image and fill it in towards that trip to Europe next summer! Since we keep our money in a bank usually, it’s nice to have a visual representation of our finances in this way. For the record, some people take it one step further and literally empty their bank accounts for cash on payday. Except for say, automatic payments or savings contributions. This way, the money is tangible and once it’s gone, it’s gone! I’m all about saving yourself from a credit card debt disaster if possible! I like to put money into multiple online savings accounts. Ally Bank was recommended by my advisor and I love it. It’s easy to use, the transfers are quick, and you can open multiple accounts and name them accordingly (which obviously makes it more fun)! Things can get complicated when you’re an independent contractor like me (more on that later). I have to put aside my own taxes and retirement contributions from each paycheck and it lives in one of these online savings accounts until it’s time to pay.
Budgeting is Not One Size Fits All
In the end, it’s all up to you on how you want to manage your money (and sometimes that takes time to figure out), but it’s definitely something to think about! Check-in with a professional. Talk to the accountants or financial planners in your life and see what’s feasible for you. I can guarantee that you’ll never regret planning ahead and it is NEVER too early to think about retirement. I knew NOTHING about this until I took it into my own hands to learn. Being able to enjoy mojitos on the beach when I’m 55? Yes, please!
What are your favorite finance tips?