No matter what profession or path your choice in life, a healthy relationship with money is required to manage, create, and multiply money wisely. How you use your money will always expose the priorities in your life. Your money can only do what you give it permission to do. If you’re not a financially savvy person, choose to learn the basics. I’m sure no one enjoys the annual physicals to the doctor, or cooking dinner, or taking out the trash. However, these are activities in life that are required and personal finance is no different.
Here are three tips for saving and spending for a recent college graduate:
Get clear on your intentions
No one ever forgets their graduation. I can remember walking across the stage with tears of joy. The dedication, determination, and confidence of having a focused goal to succeed. There is a difference between hoping, wishing, and even desiring then actually setting clearly defined goals. Set financial goals that are specific, realistic, measurable, and achievable.
Specific means identifying the who, what, when, where, why, and how. For example, a financial goal maybe-- I will add $500 to my resoure fund by December 31, 2017. An resource fund is the vocabulary term used in place of an emergency fund. The word emergency is a term associated with panic, danger, and disaster. Instead of getting emotional, remove the panic words from the situation. When an opportunity arises you'll have the resource to manage the outcome in a more positive way.
Everyone has dreams and aspirations, it’s important to set realistic and measurable goals that will inspire you to keep the momentum through your financial journey. Placing a vision board or poster with your financial goals as a visual reminder of your determination.
Create a spending plan
Creating a spending plan serves as an accountability piece to support and encourage you. It’s important to realize that a spending plan is just a tool to bridge between your thoughts and reality.
Your spending plan sets your tone and intention for developing healthy financial habits.
If you want to save, pay off debt, or invest you cannot rely on mental money math. You have to take 100% responsibility for your behavior. Taking care of your financial needs is a must before you can enjoy the fruits of your wants. Because wants and needs are different for different people, it’s important to evaluate what is considered a need to you. Needs can be classified as shelter, food and clothing, transportation, cell phone, internet, and or gas. A want is what you desire that would make life comfortable.
Impulsive and unplanned purchases are poor decisions that take you away from your financial goals. If you confuse your needs and wants you will find yourself temporarily without cash. You never want to put yourself in a compromising situation that forfeit you taking care of your needs.
Here are some guiding questions I typically ask individuals to consider: Do I need or want it? Does this purchase bring me closer or future away from my goals?
Inventory your last three months of bank statements to get a clear picture of where your money is going. Create a spending plan based on your needs and wants from your bank statements. Here why bank statements don’t lie. Most people tend to alter their behavior when they are being watched or observed. Identify your income and deduct the necessary expenses until your spending plan ends with zero. Zeroing out your spending plan means that you have a purpose for every dollar.
Save, save, and reduce debt
Start by saving $500 for your resource fund. Do whatever you need to do to get your money up to $500 as fast as you can. Start a side hustle, have a garage sell, or sell gently used clothing online. This is your cushion when your cell phone screen cracks, you get a flat tire, or when you need to go to urgent care.
After you save up that $500, it’s time to get out of debt using the debt slayer method. I like to call it the debt slayer system, which is the BFF of the debt snowball method. Basically, it’s just a matter of paying all of your debts in the order of smallest to the largest. You pay off the smallest one, first. When you’ve paid that off, use all of the money you were paying on it to put toward your second smallest debt. Follow that process until you’re out of debt. With the debt slayer method, you are going to follow the same process with the exception of throwing any unexpected earned income towards your debt.