Expense management is something that not many young adults have mastered quite yet. Most of the time, they are living on a shoestring and perhaps living paycheck to paycheck (if not on a limited allowance), so the concept of setting aside money for savings may be new to a lot of them.
Living independently and earning a salary will typically encourage a young person who's just starting out to think beyond their personal expenses and to start looking into how to manage their bills and utilities, living expenses, credit card bills, and even their student loans. Some of these expenses may begin to pile up, and some individuals may struggle to transition from the mindset of the daily allowance to thinking in terms of managing on a monthly income.
But changing your mindset is all up to you, and it starts with learning how to handle your income and cash flow. If you're new to money management, perhaps this can be an opportunity to challenge yourself to be disciplined with your finances. Here are some basic tips for keeping your spending under control:
1. Keep your credit card expenses to a minimum. If you're like many young adults, you're likely to keep a balance on your credit card. If so, then think about shopping for the right low interest card to lower your credit card bills. If you're doing a consistent job of paying your balance in full each month, then using a card with a rewards program is a much better deal, since these cards tend to offer higher rewards along with relatively higher APRs. But if you don't maintain a balance, you'll be able to avoid paying interest while earning and enjoying those free benefits.
2. Look for alternatives to credit cards. If you see yourself as the ultimate spendthrift, then perhaps a debit card could work for you instead of a standard credit card. Sometimes, we just need to work with limited resources in order for us to learn how to discipline ourselves.
3. Make it a habit to use coupons. A lot of people are now turning to coupons as well as to cash-back shopping sites for special deals. You'll be surprised by how much you can save just by being resourceful.
4. Learn how to budget. When you're first starting out, having a budget can provide you structure for the way you handle your finances. You'll develop discipline by adhering to your budget and by respecting its boundaries. Let's drill down a little further to see how it's done:
- Write up a budget. Detail every spending category or expense you need to cover, from the rent down to your daily expense budget.
- Reconcile your budget with your actual income. If there are things that you can't afford on your current budget, consider taking a second job or removing some items from your list, or readjusting the amounts you're allotting to specific budget categories.
- Determine your daily allowance. Figure out how much of your paycheck you'll need to consume each day and take note of how much you are actually spending vs saving.
- When you receive your paycheck, separate the money that's meant for the bills and think about saving the rest. Try to pay more than the minimum on your credit card bills in order to retire your debt load faster.
- Use the envelope system as an option. The amount that's meant for your daily expenses should be separated into specific amounts and if you are indeed using the Envelope System, then store your funds into specific envelopes. Otherwise, you can mimic this system by simply categorizing your expenses in a virtual manner. See if you can limit yourself to using only what's meant for a particular day.
These are only some of the ways that you can maintain control over your money and cash flow. There are other options, of course, though it's worth noting that even Dave Ramsey recommends the Envelope System for money management.
Learning how to manage one's spending and finances is an exercise in trial-and-error. Develop a plan and implement it, and over time, you'll get the hang of things. Even if you find yourself falling off the financial wagon on occasion, think about getting up, dusting yourself and continuing with making solid steps towards your future. Developing good money habits just takes a bit of practice.
Silicon Valley Blogger is a full time blogger and online entrepreneur who writes for The Digerati Life and The Smarter Wallet sites that cover general topics ranging from investing and saving to credit and debt management.