Hello there! Are you a young adult trying to make a living? Living from one paycheck to another. Sometimes it can be overwhelming since the money does not seem to be enough for the things you need it for. Good New! You are not in this alone.
In this article, we will be looking at practical steps you can take to gain control of your finances. Let’s get started!
Money Management: Practical Steps to Guide You
- Know your Financial Situation
The first thing is for you to know where you stand financially. Do you have debt? Do you have a stable income? How much comes into your hands consistently? What are the things that take money from you?
- Accessing your income and expenses
There’s a temptation to think that this is not necessary or that it is tedious. But the first step to being able to manage your money well is to do this correctly. You can use a budgeting app or a simple notebook. Write down your monthly income and also categorize your expenses into rent, groceries, transportation, utilities, and so on. This will enlighten you about the things that are taking your money the most, and you will see where you can cut down on your expenses.
- Create a Budget
Now that you have sorted out your income and expenses, the next thing is to create a budget. One advantage of having a budget is that it prevents impulse buying and spending money on things you don’t need.
One way to create a budget is to use the 50/30/20 rule. 50% of your income goes to needs (rent, food, transportation), 30% to wants (dining, entertainment), and the last 20% goes to savings and debt repayment. This way, you are spending money on important things while still being able to save.
- Managing Debt
Debt is like a slippery slope that we all fall into at one point or another in the course of our lives. Debt can either be a good thing or a bad thing. Knowing how to manage them is a great skill to learn.
There’s good debt and bad debt. Good debt is the debt you take to make your life better. For example, student loans, mortgage loans, investment loans, and so on. Bad debt, on the other hand, can make your life a living hell. Examples of bad debts are high-interest credit cards, debts you collect to take care of wants and not needs.
Strategies for Paying Off Debt
To pay off debt, consider the snowball method; focus on paying off your smallest debts first while making minimum payments on larger ones. This gives you quick wins and motivation! Alternatively, the avalanche method involves paying off debts with the highest interest rates first, saving you more money in the long run.
Building an Emergency Fund
Life does not always go as planned, sickness could knock on the door of a relative, and an accident could come unexpectedly. Having an emergency fund can really be a lifesaver! Your aim is to be able to save between three (3) and six (6) months worth of living expenses.
- How to start an emergency fund
This might seem overwhelming or even unnecessary. You should decide to put something aside from every paycheck and ensure you stick by it. You can save as little as $10 every week. You can also automate the savings so that, as soon as the money is entering your account, the amount for emergency funding is deducted from your main account immediately.
- Developing Smart Spending Habits
Smart spending habits are a major skill in learning how to manage your money
- Need vs Want
It is important that you can differentiate between wants and needs. Needs are those things
You can’t live without which are: food, shelter, and clothing. Wants, on the other hand, are those things you can live without: for example, when dining out, or buying a new pair of shoes
- Cutting Unnecessary Expenses
Look for ways to cut back on unnecessary expenses. Meal prepping instead of eating out, canceling subscriptions you don’t use, and shopping for deals can save you a significant amount of money over time.
- Increase your Income
The goal here is to be financially stable and cutting down expenses might not be enough. You should also aim to increase your income base.
You can increase your income by looking for a side hustle or part-time job. Depending on the skills you have, there are a lot of opportunities out there. You can take after-school tutoring (my favorite), you can freelance, or you can be a delivery rider. Just look for something that fits into your schedule.
- Skill Development and Education
Investing in your education and skill development can lead to better job opportunities and higher pay. Take online courses, attend workshops, or earn certifications in your field. The effort you put in now can pay off significantly in the future!
- Saving and Investing
It’s never too early or too late to start saving. Even small, regular contributions to a savings account can grow over time. Set a savings goal and make it a priority.
Nobody can build lasting wealth without investment. Investment is the key to wealth. Therefore, take your time to learn about investing. Start with low-risk options like index funds or a high-yield savings account. Learn the basics and consider seeking advice from a financial advisor.
Conclusion
Money management can be challenging, especially for young adults living paycheck to paycheck. However, by taking control of your finances, you can create a more secure and stable future for yourself.
Start by understanding your financial situation, creating a budget, and distinguishing between needs and wants. Manage your debt wisely and build an emergency fund to protect against unexpected expenses.
Additionally, adopting smart spending habits and cutting unnecessary costs can free up more of your income. Remember, increasing your earnings through side hustles, skill development, and education can significantly enhance your financial stability.
By implementing these practical steps, you’ll be well on your way to financial independence and a brighter future. Remember, you’re not alone in this journey, and with dedication and discipline, you can achieve your financial goals.
