You may not be in a place to put away a ton of money, but it’s never too early to start thinking about where you’ll start.
When I first graduated from college, found a real job, and saw paychecks double, I felt like I’d joined a new club. I was rich. I’d gone from Keystone Light and night-of-the-week pizza deals to an oxford shirt world where my work and opinion had value – at least it appeared that way to everyone outside my office. I lived with my parents to “save money” for a big transition into adulthood, a grand second act. And enough of my friends did the same thing that it was barely a transition. We were boomerangs, some with big-boy jobs, some still searching, but we were 22, our ties pulling us into the real world while our feet dragged behind.
I graduated with a degree in Financial Economics, whatever that really means I never figured out. It was a glamorous business degree, one that meant I was supposed to be good with money, if anyone was. Turns out I was better at spending it than anything else. After essential bills like student loans, a train pass, and a great pair of loafers, everything was disposable income. And dispose of it I did. Until one day when a light switched on and I realized that all the dinners and drinks, takeout lunches, and countless new toys weren’t getting me anywhere. When retirement came along my new wardrobe wouldn’t be there for me, let alone fit. Having the newest iPhone wasn’t going to supplant my 401k either.
It was time to sit down and think about thinking about saving money. The problem: everybody I knew was either a successful adult with a financial vocabulary I could barely keep up with, or a twenty something in roughly the same position I was. There was no middle ground, no 29-year-old Zen Buddhist of money who partied his twenties off without spending his future, all the while saving his mantra for me to plunder now that I’d spent my salary away staying young after graduation.
I survived the middling years with some semblance of a retirement account, no undergrad student loans or credit card debt, and enough stories to still have had some fun in the process. The key was understanding where and whom I was, figuring out a plan, and then keeping that plan up-to-date and inspired.
Understand Who You Are
This was the first question I never thought to ask myself when planning for the future. It’s one of the first questions you’ll want to jot down as you start the daunting task of pre-planning your next move. Do you want to stay in the career you chose when you were too young to make that kind of decision? Would you rather go back to school to be a physical therapist, a veterinarian, or work your way up the ranks of IT? Are student loans your priority, or a new truck? Is your girlfriend expecting a ring soon or do you need to fund your escape plan?
Whatever future you envision for yourself, the first step is envisioning it. Knowing where you want to be five, ten, and fifty years from now can help set your sights in order. One book I’ve found that does a fantastic job of preparing twenty-somethings for the road ahead is Lisa Andreana’s book No More Mac ‘n Cheese: The Real World Guide to Managing Your Money for 20-Somethings. Written specifically for people just starting out, the book is a fantastic reference as you work to become financially independent. With chapters like “From School to Workplace” and “Create a Safety Net: Insurance” you’ll find a subset of important information developed – for once – for your age-bracket. It’s a reference you’ll flip through whenever a new financial task presents itself.
Another book that has worked wonders for me is David Chilton’s The Wealthy Barber. Written as a novel, it presents financial lessons in the most easily accessible way I’ve seen to date, with important information set forth – once again – for twenty somethings as they enter the real world and move toward independence and beyond. While his methods are a bit more far reaching that Andreana’s, the fundamentals are hard to argue. Once you know where you’re headed the next step is setting up a budget to get you there.
Have A Plan
Once you know the basics of where you’re headed in life you can begin to figure out how to structure your finances to take you there. Don’t worry. I’m not sending you to a Certified Financial Planner. We’re twenty something years old here. The extra money for that went elsewhere. But creating a centralized place where you have the ability to see where money is coming from, and where it’s going, you’ll be better positioned going forward.
In putting together a budget there’s one principal I never hear enough of, but it’s one that consistently holds whether budgets succeed or fail in the balance. Wherever your budget will eventually lead you, it won’t lead you there tomorrow, next Wednesday, or two paychecks from now. So when you determine what numbers are good amounts to save up, keep in mind that you have a life to lead too. It’s very easy to say ‘I’ll put away thirty percent of my check for this and an extra hundred for that’. But if you have rent to pay and a pretty girl to take out, those are parts of your life that shouldn’t be glossed over. That isn’t to say that there aren’t ways to save there too, but they shouldn’t be factored out of your plan altogether.
For the same reason diets sound so good on Monday morning and fail by Friday afternoon, don’t stretch yourself too thin. You can always reevaluate and increase what you’re putting away. It’s far less damaging to your psyche to have extra dollars to work with than to give up. Reasonable goals for where you want to be in the coming months and years are a big step as is. The first step is taking that first step.
A great way to get started is by taking a look at free online budget websites. There are many out there, but my favorite is Mint. I’m not the only one. With over 10 million users Mint’s personal financial management service has won acclaim from numerous organizations. How can it help you? By accessing your financial institutions – bank, credit cards, student loans, and retirement plan – Mint takes the complicated mess that is your finances and organizes them in one place. It doesn’t hurt that Mint is just flashy enough to grab your attention, and just simple enough to keep it. You have the ability to create budgets, and set up notifications so you’ll get an email when you’re over budget. Advice will pop up periodically with tips relevant to your profile – a card that has points aimed at your spending habits or a predictive tax calculator.
It’s the easiest way to set up a budget without feeling like you’re inadvertently walking onto the set of Saw 7. But, if you’re uneasy about giving a website access to your accounts, you can head over to budgetpulse.com where you have the ability to create a budget by manually entering figures. However you do it, having a tangible plan will set you apart from the masses.
Keep On Keeping On
Your budget is like your baseball swing. It can always stand to be reevaluated and rethought. Even the best hitters consistently tinker with their mechanics, talking with batting coaches and adjusting as the season progresses. You can do the same. In this case twitter can step in as your hitting coach. By selecting a group of financial accounts to follow you can get periodic advice and interesting tidbits to keep your mind active and help you from feeling financially stagnant.
A recent check of a few of my favorites: @kiplinger had an article about the best cities for recent college grads. @earn showcased lesser-known national parks to visit on a budget. Taking a look at @daily_finance there is a list of items that can easily be purchased secondhand. Other top-notch twitter accounts include @money, @moneycrush, and @moneyunder30. All of these have a special place in their tweets for twenty somethings and all can help you on your quest. After finding yourself, making a plan, and putting it into action you’ll be well on your way to wherever you’ve decided you’re going. Staying the course is another story.
Down The Road
With these tips you’ll be able to make it all the way to the day that seems well out of view now. Knowing when you’ve made it is sometimes easier said than done. While you get started there will be days when you feel flush and others where a speeding ticket could send you over a financial cliff. Two methods can work hand-in-hand to prevent these days: short term goals and long-term plans. Most guys can tell when they’re going to drop bills. That simple gut feeling, if harnessed, can be the difference in your mood when it’s time to sit down and take a look at your budget.
To protect yourself after the smoke clears it would do you well to set some short-term goals. Map out what you’ll be doing in the coming months. If you like to splurge around the holidays or see that wedding season is around the corner, calculate how much you plan on spending and set up a budget to save for it. This works for everything. It’s always good to have something set aside for those nights when you close down the bar. You’ll be glad you did when you wake up like the cast of the Hangover, but your wallet doesn’t. By pre-planning for the times of the year, or the month, that seem randomly expensive you can cut down on the Monday mornings when your Mint budget is out of whack and your pockets feel unusually empty.
We’ve talked about long-term goals already. These are those off in the distance goals like a down payment on a house or a boat. They can be any size. Regardless of your specific goals, one should be a safety net. The out-of-touch always throw out that elusive standard: three months pay. That’s well and good in principle, but it creates a daunting number some of us can’t wrap our heads around. So break it down. A solid starting number is $2,000. This is the shit-happens fund that takes the immediate worry out of speeding tickets and new mufflers. Work your way to it. When you hit two grand reevaluate where you are and increase the goal. This way you move toward the crazy high number without quitting before you get started.
And be sure not to spend this fund on extra beer and new aviators. Some emergencies don’t count.