A Mini Guide to Adulting: Managing Your Finances
*disclaimer: think of this less as financial advice and more as a topic of conversation from your older or younger sister/ friend who just started her first adult job…
I had a part-time job from the time I turned 15 to just before my 16th birthday. Renovations at the KFC I worked at meant I no longer had an after-school job and my hesitance to go outside my comfort zone led to me declining the opportunity to work at the other franchises. By the time the place had reopened, I was studying for my final high school exams and certainly not looking to add anything else to my plate.
Because of how my pay weeks worked, my first paycheque was around $45. The only money in my very new back account. During the first 3 to 4 months of my first job, I didn't spend anything. I had never had this much money to call my own (African parents don't really do allowances) and I was holding onto it TIGHTLY. I don't remember what the first thing I bought with my own money was, but once those floodgates opened, there was an overflow of spending. I was buying everything I even thought I could want because I could. I had no bills to pay, no real responsibilities and I didn't think I had a reason to save so I kept spending. That same money mindset doesn't work when you're a college student living out of my parent’s home. Suddenly, I had to pay bills, pay for my own groceries and start saving for the things I wanted or needed. I am in no way an expert at managing my money but I've made some mistakes that taught me some lessons I'd like to share with you. Consider it a mini-guide to adulting and developing a healthy relationship with money.
Track Your Expenses
You don't need to use a 3-page excel spreadsheet like I do (but if you're looking, I recommend this one) but find a way to track your expenses that makes sense to you. Do it for at least 3 months and be prepared to learn a lot about yourself. You might be someone who similar to me, never really spent more than they were able to but was sometimes surprised by the amount of money or lack thereof in your account. Choose a day of the week, make yourself a coffee then sit down and go through your transactions. At the end of every month or week, take a look at your numbers – take note of places where you tend to overspend and use that knowledge to make better decisions next time. For instance, I used to spend a lot of money on uni lunches simply because I couldn't be bothered to pack a lunch. A single $10 transaction doesn't make a dent, but four of them every week for two years just wasn't worth it for me personally. Packing a lunch when I can is the compromise I made with myself so I could put that money to better use.
Please don't hear this as me supporting the "millennials can't afford houses because they eat too much avocado toast" mentality. Buying lunch wasn't the reason I couldn't afford a mortgage but it was the reason I wasn't able to save as much as I wanted to. A lot of us make purchases we later regret or have been surprised by our account balances. Tracking what goes in and out of those accounts can be a really good way to curb both of those problems.
Start Saving
Have you heard of the 50/30/20 budget rule? The premise is, 50% of the money you earn goes towards necessities e.g. rent, groceries, transport. Then, 20% of what you earn should go into savings and/or investments then the remaining 30% can be put towards leisure spending. I like the model because it encourages responsibility and guilt-free spending. I view money the same way I view food – restrictive mindsets lead to bad decision making and binging.
Of course, the validity of this depends on how much you earn, the cost of living where you are and how high your bills are. During uni, my rent and electricity bill was 50% of my allowance. That meant the money I had to budget for necessities including fuel and groceries ended up being about 75% of what I received. Then I would save about 10% when I could then the remaining 15% is what I used for leisure spending. Flexibility and a realistic mindset are very important when it comes to money. What worked for me during my uni days won't work now and what I'm doing now might not be suitable next year. Having a good foundation of knowledge regarding money means you can adapt and change depending on your circumstances.
Be realistic regarding how much you can save and commit to it. It's better to aim for a low number and always save that amount than to give up on saving completely. For example, if all you can save is $10 a week; after a year, you'll have $520 not including the interest that money might accumulate. Saving is more about consistency than it is about dropping a huge amount into your account.
Learn to Budget
Building off on the 50/30/20 budget rule, learning to budget for your expenses can be incredibly valuable. One thing I have learnt about myself is that I do not work well with a restrictive budget. I do not spend my money on the same things every month so my version of a budget has to be less specific. Instead of allocating specific amounts for my subscriptions, or skincare or going out, I just budget for the amount I'm happy spending and let the chips fall where they may. This may not work for you [in which case, find out what does] – but this is just how I do it. Analyse your income, calculate how much you need for your necessities, put away some to save then decide what you're okay spending until the next payday.
Part of 'budgeting' for me has also included giving myself some boundaries when it comes to what I spend. For example, I have a "rule of twos" for impulse purchases. If I could not afford to buy two of that item using just the money in my checking account, I won't buy the item. For clothes, if I cannot make three different outfits with the item I am considering, I don't buy that item. Other rules include setting a limit on how many times a week I can buy myself lunch at work and having what some people call an 'impulse purchase journal'. Mine is nowhere near as detailed as this one (https://thefinancialdiet.com/what-an-impulse-journal-is-how-it-keeps-me-from-splurging-download/) but it follows the same principles. If I see something I want that I haven't been considering, I add it to a list on my notes app. If I am still interested in buying the item after fourteen days, then I allow myself to buy it - guilt-free. Look at the categories where you spend the most money and give yourself some boundaries in that. They don't have to look like mine, just make sure they're ones you can stick to.
Organise Your Accounts
I have five bank accounts. There's the one linked to my card and four savings accounts my debit cards don't have access to. My bank makes it surprisingly easy to open new accounts, so I took the opportunity presented to me. Having my money pre-divided into five categories makes it harder for me to spend more than I have budgeted for. Most Australian banks not only let you compare interest on their savings accounts, but they also don't charge a fee for you to open another account… or two. Because I track my expenses and am relatively self-aware, I know that I spend money on certain things more than others. So, I opened specific accounts for them. I have an account specifically for costs associated with my intern training, another for holidays and an investment fund. When I was saving for a new computer, I had an account specifically for that too, then when I reached that goal I repurposed that account into my holiday fund.
I recommend that everyone start with an emergency fund. The purpose of an emergency fund is to help cover unexpected costs like new tires if one of them goes flat on your way to class (true story) or to supplement your income if for some reason you are out of work for some time. For people working full time, 3 months of your income is the magic figure given for what you should aim to reach. For anyone else I'd say aim for whatever you can afford to put away and not touch until you need to. The second account I would recommend you open is a sinking fund, similar to an emergency fund but you're allowed to use it. I use money from this account for birthday presents, Hamilton tickets or buying new sneakers.
I keep this money in a separate account because I don't always need access to it. By doing it like this, I am therefore able to save a little bit consistently then put it towards something I want but don’t need when I want to. I hope that makes sense.
That's pretty much all of the "financial advice" I have for you. None of it is particularly revolutionary but doing things like this has helped me see money more as a tool than something that controls me. Managing your money doesn't have to be complicated, it just takes a little bit of work and an understanding of where you are. You don't have to and you can't reach six figures overnight and the cost of living where you are has some impact on how much you can save. So does the car you drive and how much fuel it uses, or your public transport fees, or your rent. My last piece of advice is to seek out some education. There are many people and platforms available for free that prioritise educating the masses on money management. The only reason I know all this is because I learnt from others who know more than I do.
I've listed below some of the platforms I have learnt from, let me know if you have any that you recommend in the comments. Talk to you later.
Patricia Bright’s ‘The Break Platform’