If you’re like me, you don’t like when people tell you what you should be doing with your money. When I was in college I had absolutely no money, or at least I thought I had no money. But somehow I still traveled to other schools (even out of state), I kept up with the latest fashion trends, and I stood on a couple couches basking in the bottle service while others looked on.
So if I was broke, how did I do all those extracurricular activities? I can sum it all up in one word…resourceful. If I wanted something, I made a way. I was determined to get what I wanted and I’m sure you are the same way.
After college, I started making more money than I ever had before, but strangely, I knew that my old college habits couldn’t continue at the same rate. Christopher Wallace once said, “Mo’ money, mo’ problems,” and although you may not have more so called “problems” with more money, you will have more responsibilities.
To make the most of your money with these added responsibilities, you will have to consider the following tips if you not only want to keep more of your money, but build wealth the process.
Tip #1: Create a bomb budget
Most young adults know what a budget is, but if you don’t, it’s an organized way of keeping track of your money. You monitor how much comes in compared to how much goes out. The key is to make sure the amount going out doesn’t exceed the amount coming in.
Now that may seem simple, but many millennials struggle with this simply because they aren’t tracking what comes in against what goes out.
Challenge #1: Create an itemize budget and monitor your money habits for the 3 months. Ask yourself, “Where is most of my money going out to and how can I keep more in?” Mint has some budget templates already created for all situations, which you can download for free by clicking here.
Tip #2: Start saving and investing today
We all know the story of the ant that gathered food all summer preparing for the harsh winter. Let’s take that same story and flip it using money instead.
Mrs. Stock Doc, age 25, starts saving $100 per month and invests it every 12 months ($1,200 per year). By age 65, she’ll have almost $240,000 (assuming she earns 7% interest annually).
Mr. Stock Doc, age 35, starts saving $100 per month and invests it every 12 months ($1,200 per year). By age 65, he’ll only have just over $113,000 (assuming he also earns 7% interest annually). That’s over 50% less money than Mrs. Stock Doc simply because the start was 10 years later.
The difference between the two amounts is so large because of compound interest. Simply put, if you earn interests one year on your money, then the following year’s interest will be determined by your new, higher balance. More money is generated simply by letting your money work for you longer.
Challenge #2: Look at your budget you created from Challenge #1 and start saving whatever you can consistently (even if it’s just $10 per month, just do it). Every 3 to 6 months, reassess your budget and increase your savings contributions where you see fit, but never decrease them. Once you have a nice cushion, start investing.
Tip #3: Automate your finances
A big reason many people in their 20’s struggle with money is due to lack of discipline. Lucky for you, there are many money hacks that can automate your finances making the idea of money management not seem like so much of a chore.
Setting up direct deposit for your paycheck into your bank account is extremely convenient and easy to setup. Also, you can set up to pay some of your bills automatically from your bank account that way you never miss a payment and avoid potential late fees in the event that you did miss one.
Having recurring money transfers from your employer or bank account into your investment account can also makes Tip #2 even easier. Once you get in the habit of not seeing the money, you’ll adjust to a new budget and grow you money in the process.
Challenge #3: Contact your employer today about setting up direct deposit if you don’t already have it set up. Also, link your bank accounts to whichever bills allow you to and either set up automatic payments through pay schedules or put alerts in your phone to notify you when a bill is due at least 24 hours in advance.
Tip #4: Take chances
The common saying is, “Scared money don’t make no money.” Well that’s a double negative meaning that scared money does make money which isn’t necessarily true.
Strive to step outside of your comfort zone when it comes to investing. Being that you’re in your 20’s, you have plenty of time to fall and get back up, if that were to happen. Money market accounts like certificates of deposit (CDs) and savings bonds are cool and all, but the upside is extremely limited and will not grow your money the way it needs to if you plan to build wealth.
Challenge #4: Research one new investment opportunity per week for the next month or two. Assess the risks involved as well as the rewards and seek out help to understand them better. Sites like ours and Investopedia are great stepping stones for investment education. Yahoo Finance and Market Watch are great investment news sites. Seeking Alpha is a great network of financial writers sharing their expertise and opinions about different investing opportunities.
Investor Takeaway: You may be young, but you aren’t dumb. It’s all about discipline and action. Set a plan and achieve. No more, no less.
Disclosure: This editorial is by no means a solicitation to buy or sell any of the above-mentioned securities. It is merely a means for educational purposes. All investors are subject to their own research and due diligence. http://www.thebmex.com/single-post/2016/08/04/4-Wealth-Building-Tips-20-Somethings