New York (CNN) Graduating from college or graduate school and becoming a working adult is exciting, but feeding yourself for the first time can be a little intimidating.
One way to control fear is to manage your finances. Regardless of your income or debt, developing some good money habits will help you not only live well in your 20s, but for the rest of your life.
Shari Greco Reiches, behavioral finance expert, financial advisor, and author of Maximize Your Return on Life, said:
Here are some smart money moves to help you get started.
1. Aim to live within your means
Ideally, you should spend less than you earn and save the rest.
Doing so gives you the freedom to invest your energy in what matters most to you: where and how you live, how you work and travel.
But living within your means involves making choices based on your own priorities (not those of friends you may be living with). is not).
“You can get whatever you want, but not everything, so pick what matters most,” says Reiches.
2. Know your meaning
Calculate how much money you bring in, how much you spend, and how much you save. Also, know how much you spend on things you like but don’t really need. That way, you’ll know where you can cut spending if needed.
As a guideline, Reiches suggests a 50/20/30 rule.Take your total income and subtract everything from it federal, state and local income tax Plus Social Security and Medicare taxes withheld from your paycheck. (If you are doing this based on a single salary and are paid every two weeks, multiply this result by 26 to get the annual after-tax figure, which means that in a year he will pay 26 times (because you will receive the salary of
Don’t allocate more than 50% of your after-tax income to essential expenses (rent, utilities, groceries, transportation, etc.).The remaining 20% will be used for short-term and long-term savings the goal and pay off high-interest debt. The remaining 30% can be used for discretionary spending (clothing, entertainment, dining out, travel, gifts, etc.).
The 50/20/30 rule is not fixed. For example, if you live in an expensive area, your rent may exceed 50% of your necessities. In that case, you can choose where else to cut, or live with roommates to cut housing costs.
Employee benefits at work can also help cover some of the costs. For example, subsidized gym memberships, free onsite medical services, subsidized transportation, and other discounts.
3. Don’t rely on money you don’t have yet
I heard that you can get a bonus. You expect a raise. Someone in your family may send you birthday money. And your friend still has to give you back last year’s vacation. But you can’t control when it comes or how much you get, so don’t use it beforehand until then.
4. Spend a little money for a lot of protection
If you’re young, healthy, and able to afford it, you may be tempted to stop taking out health insurance because you think it’s unlikely that you’ll get seriously ill. Yes, but not zero. And your youth and good looks do not protect you from (expensive) injuries in bicycle or car accidents.
A health crisis can cost upwards of $50,000 if you don’t have insurance.
Jonathan Clements, founder of the HumbleDollar site and editor of the new book My Money Journey: How 30 People Found Financial Freedom — and You Can Too, said:
You can save money if you are under 26 and can continue to have health insurance that is subsidized by your parent’s employer.
If you’re not on your parent’s plan and you’re a freelancer or contractor, get a coverage or bronze level plan that’s devastating in the health insurance market. , you may even be eligible for tax credits to offset the costs. this calculator From KFF.
If you want to work full time for one employer, choose an affordable option from the subsidized plans offered.
5. Keep things simple
Using multiple payment methods (bank debit cards, credit cards, payment apps, etc.) makes it difficult to track all your purchases and other expenses.
If possible, streamline what you use for payments.
Clements recommends having only two credit cards. The second has a higher limit (e.g. $5,000) and should be kept at home and used only in emergencies and when traveling.
That way, you can limit your bills (which makes it easier for you to pay your monthly bills without worrying about late fees or punitive interest). Plus, it helps your credit score by never charging you an excessive percentage of your total credit limit. (Clements notes that in order for a higher limit card to continue to count towards your total credit limit, you will need to use it occasionally for small purchases so that some activity on that card will be reported to credit bureaus.) Note that being full and on time every month also helps build credibility.)
If you use a payment app, choose one app to use instead of multiple. If you have an iPhone and use Apple Pay, he said, it can also be used as a “walk-around” card.
6. Pay your future self
If you’re lucky, you’ll get older — you’ll get older. (No, it’s not 30’s. It’s like 60’s, 70’s, 80’s.)
“Someday you will be that person, so don’t be afraid to think about your future self,” said Clements.
And that person, after decades of hard work, will be very grateful to have enough money to pay for the housing, medical care, and lifestyle you want.
You may not be earning much right now, but you have the best resources to accumulate wealth.
This means that even if you have very little savings now, it can grow into real money over the years.
For example, let’s say you can only save $100 a month. That’s about $3.33 per day. At an average annual return of 7% over 40 years (assuming a more conservative investment strategy than his contemporaries), by his early 60s he would have earned $264,112. The power of compound interest.
Of course, your salary and your ability to save more can increase over time.
Bonus: If your employer offers a 401(k) plan, a portion of your contributions will be matched by your company. That extra “free” money will definitely pay off over time, so make sure you contribute enough to your plan to get the full match.
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