Financial Tips For The Young Worker
by Tara Brookes
This is a word that most of us women hate to hear and think about (let alone doing it!). After all, who wants to live life with financial limitations? As unattractive as it might seem, though, it will serve you well to buy only what you can afford, not over-spend or go into debt.
Guideline for after-tax expenses:
10%: fixed expenses
10%: loan payments
10%: personal spending
Step One: Add Up Your Income.
To set up a monthly budget, you need to know how much money you have available to spend every month, after you pay your taxes. This is your net household income, because it is the number that is left AFTER you have paid out all your deductions to the government.
If you get paid once a month, just look on your pay stub to see your net monthly income.
If you get paid weekly, every two weeks or twice a month, you will need to do some math to figure out your net monthly income:
For weekly pay, multiply the weekly amount by 4.333
For every-two-week pay, multiply the amounts by 2.167
For twice-a-month pay, multiply the amounts by 2
Step Two: Estimate Your Expenses.
Here is where you write down what you think you will be spending your money on. It is easier to remember all the places your money goes, if you divide your expenses into groups.
You can lump them into big groups, like “shelter” and “loans,” or you can get really specific, and figure out how much you spend monthly on more particular things, like “clothes” and “transportation.” Divide your expenses up in whatever way is easiest for you to keep track of.
Step Three: Figure Out the Difference.
After you have created your budget, you need to make records of your actual monthly income and expenses. This will help you understand the difference
between the amount you plan to spend on something, and the amount you actually spend. Save your receipts, so you can really know were your money is going. You would be surprised how much money gets spent on that daily latte.
You may be surprised to discover a lot of gaps between these two areas in the beginning. That is exactly why coming up with a budget is such a good idea. It shows how you really spend your money.
Step Four: Track, Trim, and Target.
After you pay attention to your spending habits for a little while, you may realize that you are spending more money than you are actually making. You will also see where you are spending too much money.
In some cases, it is then also NOT too hard to cut expenses!
The only thing about money is that there are some obstacles involved that means that you need to decide what things you need, like food and a roof over your head, and things that you want, like a great car.
The Planning Process.
Would you like to own your own home one day? Would you like to buy a car? Everybody has a dream that needs money to help make it come true. The difference between those people who realize their dreams and those that do not is, that those who do have a plan. Here’s a four-step model to help you make your dreams come true. Writing things down is the unstated rule of thumb, for this entire process.
Set Goals – Put aside your “want” list. Now, turn your “need” list into a collection of goals. Some people like to set daily, weekly, and yearly goals for themselves. Set up your “goal list” in whatever way works best for you.
Make a Plan – With goals in hand, you must now begin to develop a plan for achieving them. Imagine yourself moving toward each goal. Break it down into steps. If you can afford to set aside $10 a week toward purchasing a winter coat, for example, figure out how long it will take before you have enough money to buy it. Then make a calendar with an instruction to save $10 a week. Remember, writing your plan down makes it easier to achieve. I can not say this enough.
Take Action – Now you have a plan. Congratulations! Print several copies, look at them often, and take action
Balancing Your Checkbook.
It is important to keep track of all the activities in your account in your check register (the little notebook that comes with your checks). This keeps you organized, allows you to monitor your own financial activities more actively, and lets you spot every single inaccuracy that pops up from bank calculations – you may be surprised at how common they really are!
Step 1: Get a clean piece of paper and list the current balance from your bank statement.
Step 2: Add any deposits that you have recorded in your check register, but that are not yet shown on the statement.
Step 3: Subtract any outstanding checks, withdrawals you have made with your debit card, regular automatic payments you set up, and any withdrawals you make at a bank machine.
Step 4: Compare the result you arrive at with the balance in your check register. NOTE: The balance in your check register should be adjusted to include: (a) deductions for service fees or other charges; (b) additions for direct deposits and interest earned.
Saving money is something most of us want to do, but it is also always something we do not always do. Saving is easier than you think, as long as you know what you are doing with the basics of savings and what interest can do for you.
The formula is:
Original dollar amount x Interest rate x Length of time (in years) = Amount earned
Example: If you had $100 in a savings account that paid 2% per year simple interest, you would earn $2 in interest by the end of the first year.
$100 x 0.02 x 1 = $2
At the end of two years, you would have earned $4. The account would continue to grow at a rate of $2 per year, despite the fact that, at the end of the first year you had $102 in the account.
Compound Interest Calculation.
With the compound interest calculation, interest is paid on the original amount of the deposit, plus any interest earned.
The formula is:
(Original dollar amount + Earned interest) x Interest rate x Length of time = Amount earned
Example: If you had $100 in a savings account that paid 2% interest compounded
annually, the first year you would earn $2 in interest. The calculation the first year would look like this:
$100 x 0.02 x 1 = $2 (interest for the first year)
$100 + $2 = $102 (total amount in account at the end of the year)
Credit Cards 101.
Credit cards have advantages, and when used wisely, can be an indispensable financial management tool.
Owning a credit card comes with many advantages. Credit cards give you the ability to buy needed items immediately, and they also allow you to get an “interest-free” loan, as long as you pay your balance in full by the due date.
The Power of $50 a Month.
Even though you do not always have to pay off the entire balance on your credit card every month, you do need to pay something. This is called the “minimum payment.” Sometimes people do not realize how long it will take them to pay off their debt if they only pay this every month. If you can afford to pay a little bit more than the minimum payment every month—say, $50 extra—it can make a big difference to how quickly you can pay off your whole debt.
Getting Out of Debt.
There are two great ways to change your debt load and debt/income ratio: cut spending and bring in more money.
Tara Brooke was a former fashion and swimwear model and the author of the book “Beautiful Ambition: My Secrets to Love, Happiness & Success“.
This is an article contributed to Young Upstarts and published or republished here with permission. All rights of this work belong to the authors named in the article above.