Oh my gosh, take me back to 20 years old and I can show you how to have a fortune. I have literally spent 10s of thousands of dollars and have very little to show for it. Why?? Because I was young wild and free, of course.
Knowing what I know now, those were the days to set your future up. We learn so many horrible habits so early. Just think about it, if you were anything like me, when you first started working at 17, you got that small $150 check on payday and you blew it. I saved enough not to have to ask anyone to help me with my responsibilities, but I had nothing else to show for it. I partied, bought clothes and shoes every couple of weeks, ate out, and all kinds of unnecessary spending. I mean did I really need new shoes just to go out? Really?
Very early on I learned how to take my check to the limit and live paycheck to paycheck without saving. But it does not have to be that way! So here are my keys to success so that you and your young adults in the household do not repeat the same mistakes I did.
PAY YOURSELF FIRST– This is something I did not pick up on until much later in life, but it helped me tremendously, and is key in me building up my financial cushion. I have a set amount that I pay my savings account every months (or every check) just like any other bills.
The key to this is :
- NOT OVEREXTENDING WITH YOUR BILLS!
- LIVE WITHIN YOUR MEANS!!
Don’t go buying an iPhone 27 with unlimited data if your budget says, “prepaid please.” Making these types of sacrifices set you up for success.
UDERSTANDING HOW TO SET YOUR BUDGET- Knowing how much you have coming in every month determines what you should and should not indulge in, and what monthly commitments (bills) you can sign up for. Be mindful of what financial obligations you take on every month, and make sure it is within your budget upfront. Keeping this in mind ensures that you do not interfere with your ability to save (i.e. pay yourself), and also that you do not negatively impact your credit by failing to pay back creditors as agreed.
SEPARATE YOUR MONEY- It is important to separate your money to help you become more successful at organizing your personal finances. As an absolute minimum you need two accounts, one savings account and one checking account.
Your checking account is typically your primary account. You probably receive your direct deposit into that account, and use that account to manage paying your bills from. So if you are constantly paying bills out of it how could you possible save there, right? It would be difficult. So that is the importance of getting yourself a savings.
Your savings account is a good place to have money set aside for a rainy day. There are many different things to save for, and many people have separate accounts, or even separate banks for each. The initial savings account should be your emergency fund. I personally have this one set aside for car repairs, medical expenses, family emergencies, or other unexpected expenses that need to be taken care of immediately. $1000 is a good goal for an emergency fund, but your emergency fund should be set based on your personal needs, goals, and family situations.
Once the emergency fund is set. I believe everyone needs an account for fun. Vacations, social gatherings, or even shopping are all times that we get to let our hair down so to speak. Having an account set aside for this can allow you to splurge and spend guilt free because you know you have already done the work.
“I set up an account that money goes into but I never borrow from.”
Last, an untouchable account has been very useful for me. Once I got a good grasp on savings, I set up an account that money goes into but I never borrow from. This account is a big deal because it allows you to save on a grand scale. It allows you to build up the recommended 6 months of savings. It also puts you in position for larger purchases like cars or homes that may require a down payment.
These are great ideas to help you get a grasp on separating your money, but don’t feel the pressure to have them all on day one. Also, realize the importance of setting your accounts up to align with your personal finance goals. Nobody’s goals or accounts will be identical. The key is to start feeling like you have more control with your money, and structure your accounts with that in mind as an end result.
SACRIFICE AND DICIPLINE- In order to have money that grows you have to get a plan, and make sacrifices that not everyone is willing to make to set up your future.
“Today I will do what others won’t, so tomorrow I can accomplish what others can’t”
With patience and persistence your finances will be in much better shape and in the perfect position to continue growing. These steps allow you to develop healthy financial habits and lead you to experience financial freedom.
On future posts we will dive into topics like how to budget, and interest bearing accounts to get a deeper understanding on how to get the most out of your plans. Please like, share, and subscribe to keep up with the information.