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You learn a ton of things in school. Yet there’s one subject that almost never gets discussed during your student life and that’s “How to manage your money”.
In this article, I’ll show you time-tested, proven and actionable advice that you can immediately apply as you get the ball rolling in the real world.
4 Ways to Level Up your Money Management skills
It all starts with the right mindset. Having a financially-conscious approach in how you budget your money will help you steer your path towards financial freedom faster.
Save at least 10-20% of your paycheck
The timeless wisdom shared in the classic masterpiece, “The Richest Man in Babylon” tells us to, “Start thy purse fattening”, or “paying ourselves first.”
This should happen before you actually start budgeting your money. If you earned $2,500 on your first paycheck, keep at least $250 and then budget the rest.
This ensures that you have consistent savings no matter how much your income is. It’s not the amount that matters, it’s the discipline and routine of saving that you develop that will be far more valuable when you integrate this into your life.
Track your expenses and investments
Why do this? Because the benefit is twofold: First, it allows you to become more conscious and disciplined in how you spend your money. Second, it acts as a reporting and goal setting tool for tracking your financial goals and progress. There are plenty of apps out there like Mint and YNAB to help you with this.
Look for ways to reduce your non-discretionary expenses
Non-discretionary expenses are the non-essential stuff that’s beyond the primary must-haves like food and shelter. Movie tickets, dining out, buying new gadgets and travel, are examples of non-discretionary expenses. I’m not saying to cut them off completely in your life. Just try to be more mindful about them and try to reduce the ones you don’t use often and can live without.
Pay off credit card and student loan debt ASAP
One of the best moves towards financial freedom is getting rid of debt. As you start earning, be disciplined enough to set aside proper amounts to clear them off. It’s easy to fall into the trap of buying stuff simply because you now have the money to spend. That’s fine and all, but you’ll get better use for your money if you use it to clear high-interest debt and student loans first.
5 Easy Steps towards Financial Freedom
When you were a student, you probably rolled your eyes when the topic of savings and retirement accounts came up. And that’s normal. However, now that you’re actually earning, getting yourself acquainted with Money Management 101 is essential.
Leverage your employer’s 401k
One of the easiest ways towards a worry-free retirement life is by making 401k contributions. If your employer offers this, make sure to max out on your allocation. Plus, employer matching is essentially free money, so why not take advantage of it? It will help you build up a nice nest egg for later in life.
Set-up a Roth IRA (After-tax retirement account)
It pays to save and invest early. If you have the funds, give your future savings a boost by putting money in a Roth IRA. It’s slightly different from a traditional IRA as a Roth IRA is post-tax money but it does come with its own advantages. Utilize all possible savings mechanisms available while you’re young so you can take advantage of the benefits of compound interest.
Find a side hustle and set up multiple income streams
Another golden rule mentioned in The Richest Man in Babylon is to “Increase thy ability to earn”. The author tells us that if we want to have a financially-secure future, it’s imperative that we always strive to learn new skills to put ourselves in a position of earning more.
Perhaps you can do some freelance writing on the side during weekends if that’s your thing. Check out these few suggestions for earning extra cash on the side. Or you can take up coaching and lessons, sign up for courses, and read books about a specific skill you want to learn and profit from after.
Having multiple sources of income helps you build your assets faster. It can help you pay off your student loans and other debt quicker. The discipline you develop in making better use of your time will also prove valuable in the long run.
Plus, there are a lot of success stories out there showing people who built businesses which started from a side hustle. It helped them find that one thing that they actually love doing and developed ways to earn from it.
Build an Emergency Fund
Having some money stashed during financially-tough times (read: emergency expenses, you lose your job, etc.,) keeps your head above water. It gives you enough buffer for the occasional financial drought. It helps save you from making bad career moves simply because the money’s tight and you need whatever job you can get your hands on.
Consider a Health Savings Account
One of the best ways to have sufficient health coverage is to sign up for a Health Savings Account. It’s similar to how a 401k works but is focused on providing you with easy-to-access funds for qualified health expenses. And it’s got a bunch of bonuses. I highly recommend you check out this HSA infographic for a quick overview of HSAs.
And lastly, don’t forget to take care of yourself! Enjoy the ride as you learn the ropes of your chosen path. Make sure to find some time to unwind and try to achieve a nice balance between your work and the things you enjoy.
Good Luck out there!
This is a post from Clint Haynes, a Certified Financial Planner® and Financial Advisor in Kansas City, Missouri. He is also the founder and owner of NextGen Wealth. You can learn more about Clint at his website NextGen Wealth.