The most used word for a person in their early twenties has got to be “budget”. (Could be a few other things also…that I won’t mention for the sake of keeping it classy).
Every person I know right now is budgeting. What does budgeting mean? It simply means allocating a specific amount of money to various aspects of your life in order to keep it together and either meet financial goals or just to stay afloat.
I’ve been putting off writing this article because frankly, budgeting is NOT my specialty. I’m definitely more of a spender than a saver, and I blame my live-in-the-moment attitude – and love of travel and fashion. That being said, I have had to force myself to budget, and have learned a few tricks here and there, because as my parents and my bank account love to remind me tirelessly, money goes way faster than you can make it. So, for the fellow spenders, I’ve made a list of 6 ways you can manager your money better:
1. Create a Pre-Authorized Transfer to Your Savings
Make a list on Excel or in a Word table of your biweekly salary/income, and subtract all your recurring payments: rent, car insurance, etcetera. Then, see how much you have left for spending. Divide that number by 4 (or a smaller number, if you can afford it), and create a pre-authorized transfer to your savings for that amount, set up for the day after your pay check goes into your bank account. It’s the best way to ensure that you’re saving, while not having to worry about it. Now, you can use the rest of your pay check for groceries, entertainment, and other spending, while not having the guilt of not setting yourself up for the future. If you have extra money at the end of the month, then consider transferring more to your savings.
2. Keep Most of Your Money in A Savings Account, Until You Can Start Investing
Most savings accounts earn interest, as opposed to chequing accounts. I don’t believe in having money sitting in your chequing account that you’re not using – it’s essentially depreciating in value. If you have enough saved up to start investing, go for it – set up a meeting with your financial advisor and discuss your options. Consider RRSP’s for the tax advantages – GICs, government bonds, and more.
3. Go Credit Card Shopping – And Only Use Your Credit Card for Purchases
Credit cards offer tons of perks – cash back on purchases, rewards points, preferred rates on insurance and rentals, and much more. I strongly suggest looking up credit cards from all different financial institutions until you find the perfect card for you (you don’t have to have all your assets with a particular bank to have a credit card with them). I personally enjoy to travel, and would benefit from saving money on tickets, car rentals, and hotels, and I found a credit card that helps me do just that.
Here’s another tip: NEVER PAY WITH CASH if you can avoid it. Always use your credit card. Why? Because, a cash transaction is essentially a total loss for you (if we ignore the value of what you purchased). By using your credit card, you earn points, cash back, and so on. You earn while you spend! (Can you tell I was a bank teller, once upon a time?)
4. Always Pay Off Your Credit Card
This has got to be the most important rule of all. In fact, if you don’t do this, completely void out rule #3. Not paying off your credit card in full is the worst investment you can make – credit card interest is such a trap, and it genuinely hurts me to see how much people get charged solely for not paying their credit cards off every month. Make it a priority! If it’s difficult for you, pay it off every time you spend $100. That way, you can manage your spending, and if you see yourself overspending, you can pull back and manage it better.
If you’re already in too deep, consider applying for a line of credit, and temporarily using that to pay off your credit card. Although it’s still paying off debt with debt, the rates on lines of credit are usually at least half of what they are on credit cards.
5. Download an App to Track Your Spending
I don’t want to sound like a hypocrite, because I definitely don’t do this at all. It actually stresses me out to look at how much I’m spending, as if I’m being monitored. However, if you can stomach it, it can be extremely helpful to track where most of your money’s going, to find ways that you can possibly minimize the spending in some areas where you maybe don’t need to be spending so much money.
6. Cut Out Unnecessary Spending
My kryptonite is Starbucks coffee. In 2018, I got Starbucks almost every day, which you could probably imagine put a large dent in my wallet. In 2019, I had to give myself a huge reality check – if I was to get a $5 coffee every day this year, I would be spending $1,825/year only on coffee. When I put it like that, I could not justify it at all. Since then, I started making my coffee at home, and I’ve had to experiment with all types of coffee until I found the perfect recipes, but eventually I did, and I saved a lot of money doing it. Find your kryptonite, and then find a cheaper alternative.
I would love to hear any tips that you may have on how to budget or manage your money better as a recent graduate, leave your comments below!