Money Principles You Should Know by 25
Having bad financial habits can create tons of unnecessary stress for you! Having to live paycheck to paycheck and always count pennies can really derail us from living our life to the fullest. Your 20’s is the perfect time to learn to be financially smart and independent. I live by these five money principles so I can save more, afford more, and live comfortably. If you are looking to take control of your financial life, these 5 steps will help you grow!
- Savings account
A savings account is a necessary step in being a finically responsible adult. A savings account is there for all those unexpected finances like when your dog needs surgery after eating multiple children toys or when your ex-boyfriend keys your car. Besides those ridiculous emergency situations, you shouldn’t touch it! A savings account isn’t for shopping sprees, late night taco bell cravings, or nights out at the bar.
Your savings account should NEVER fall below 1,000 dollars. (If it currently is, that’s okay —it’s a learning process.) However, you should transfer at least 10% of your income every payday. That way, you don’t even have to think about that money! Poof! If you never had it to play with, you can’t be upset when it goes towards savings… right?
I know a savings account isn’t fun. We want the satisfaction of our hard work NOW but it’s important we plan for the future. Imagine losing your job. You should have enough money in savings to be able to survive for 3 months while you search for a new one.
If you’re really terrible at saving, consider downloading Digit. Digit tracks your spending and learns your financial habits, they will automatically help you save by transferring small amounts of money from checking accounts into your own Digit account. Learn more about Digit here.
- Live below your means
I’ve had multiple jobs throughout my life but it never prepares you for when you receive a 1,000+ paycheck! When you first start making the big bucks, you immediately want to spend it all! I spent half of my first paycheck on a smart TV that I barely turn on nowadays. Learn from me: Just because you have the money does not mean you should spend it all!
Even though you’re making more money, don’t change your spending habits. You should ALWAYS live below your means. A great example is that you may be able to afford a new 2017 Mazda 3 but go for the Honda Fit. Monthly payments will be 100$ less.
I practice living below my means by shopping secondhand, buying in bulk, and clipping coupons!
- Prioritize your spending
You have multiple bills to pay and while everything needs to be paid… some things are more important than others! You can live without cable but if you don’t pay your rent, you won’t have anywhere to live! Sit down and figure out what your most important expenses are. Pay those at the beginning of the month.
Think of prioritizing like an apothecary scale: On one side are those cute shoes you saw at T.J. Maxx for 30$ while on the other is this week’s lunch. Which outweighs the other? When you spend money, you may not be able to afford other items in return. Adulting comes with a lot of difficult choices!
By prioritizing your spending, you may have to sacrifice some of your other expenses. I know Netflix and Spotify seem NECESSARY but you CAN live without it! I’m currently learning to eat out less so I can afford other nice things.
- Create a budget
By having a budget, you can keep an eye on your expenses and stay in your limit.
It seems simple, but knowing what you spend is probably one of the simplest habits to start but one of the hardest to maintain. Much like exercising or dieting, tracking your expenses is great at first when the goal is fresh. Then, it gets tedious over time.
However, if you use a free app like Mint, you can link all your accounts and see your spending in one place. By creating a budget you’re able to know where you are spending your money most, be more aware of your spending habits and thus, decide what you can and cannot afford. (Bye bye Starbucks.)
- Don’t rack up debt
Debt sucks… It baffles me that some people will happily rack up more debt before paying past debts off. It’s not worth it!
Focus on paying your debt off before creating more. So, before you purchase a new laptop, pay off your TV.
Racking up debt will cause you to have a poor credit score. Making it more difficult for you in the future. You need a good credit score to secure a loan for a car, or a mortgage. Why would you want to do that, right? Building good credit is essential in your life as a consumer. Pay that shit off.
“Adulting” may not be rainbows and unicorns, but it doesn’t always have to be difficult! If you form good financial habits while you’re young, your wallet, credit, and future self will thank you.