Knowing how to manage your money effectively is a vital skill for independence. People vary widely in how carefully or casually they plan and track the flow of money in and out of their "pockets", but good money management habits can make a huge difference in your quality of life.
Manage Your Personal Finances
First Things First
The first step in managing your personal finances is making a budget. Only through tracking expenses and budgeting will you fully be able to understand where your money is going. Also, budgeting is the only way to figure out how to save more and to see exactly where your money goes.
To create a budget, record EVERYTHING you spend in a month's time to use as a guideline. You may be surprised at where your money goes and may want to make some adjustments in your spending habits.
To Make a Budget:
- Make a spreadsheet of your income and expenses. Expenses can include food, rent, entertainment, student loans, etc. List your expenses by priority.
- Look at your month's expenses, then start at the bottom of the list and limit or eliminate where you can. You should be taking in more than you spend, so put that amount into savings before you pay your bills. Otherwise you might be tempted to spend it on something you don't need.
Wise Money Tips
- Use the Credit Card Sparingly, Learn Self-Control
Although you can effortlessly purchase an item on credit the minute you want it, it's better to wait until you've actually saved up the money. Do you really want to pay interest on a pair of jeans or a box of cereal? Interest rates are often 20% or more on your credit card balances, which will eat into your income. When you get your first job, don't be enticed by credit card companies who offer a credit limit you don't need. The extra credit line could affect the interest rate you'll pay on a loan and you might be tempted to spend unwisely. It is useful to have at least one credit card. A credit card is sometimes used as a security deposit for some rentals and some people prefer to use a charge card instead of cash - but there is a danger of losing track of your spending if you do this. - Make a Shopping List
Don't buy things on an impulse. Before you go grocery shopping, make out a list and have something to eat. Caving in to a craving for a specific food can add as much as 50% to your grocery bill. Don't deviate from your grocery list. - Start an Emergency Fund
A well-known expression you may hear is "pay yourself first." No matter how much you owe in student loans or credit card debt and not matter how low your salary may seem, it is wise to find some amount - any amount of money - in your budget to save in an emergency fund every month.
Having money in savings to use for emergencies can really keep you out of trouble financially and help you sleep better at night. If you get in the habit of saving money and treating it as non-negotiable monthly expense, pretty soon you'll have more than just emergency money saved up. You'll have retirement money, vacation money and maybe even money for a down payment on a home.
TIP: Put your savings in a high-interest online savings account, a certificate of deposit, or a money market account. Otherwise, inflation will erode the value of your savings. - Build a Good Credit Record
As you pay your own bills and debts, you are building a credit record or a credit history. Credit reporting companies collect information your history of paying debts, which is used to prepare credit reports and credit scores that reflect your creditworthiness. Your credit score will be considered by financial institutions when borrowing money - the higher your credit score, the more chances for you to get a loan at a lower interest rate. Your credit rating will also be considered when you apply for a job, an insurance policy, or an apartment; and it will be particularly important if you decide to buy a house.
TIP: The best ways to build and maintain a good credit record are to pay all bills and other debts on time. Also, avoid charging more on your credit card than you can pay off in full by the due date each month. If you cannot afford to pay off the entire balance, at least be sure to pay the minimum due, consistently and on time, to avoid late fees and a bad mark on your credit record.
If you cannot qualify for a regular credit card, you may consider a no- or low-fee secured credit card where you keep cash in a deposit account that would serve as collateral. - Guard Against Fraud
Don't be a victim of bogus "get rich quick" or "solve all your money problems" offers. Consult a manager at your bank or another official you trust to determine if an offer is legitimate or not. - Keep your Financial Information Private
Do not share it with strangers or casual acquaintances.
Things You Can Do
- Go to College
If feasible, give serious consideration to enrolling in college. Your earning potential increases significantly with a college degree. Plus, you will likely experience a love of learning that you will never outgrow. Yes, it's a major investment, but if your parents or caregivers are unable to help you pay for it, make it happen yourself, even if it means taking at loans. Look into all of your scholarship and financial aid options. Look into community and state colleges and try not to borrow more than the amount you expect to earn the first year after graduation. That way you can pay off the loans within 10 years. Note: it is easier to get a degree when you are young, than when you have a home, family and all the adult responsibilities that come later in life.
TIP: One way to save money is to go to a community college first and then transfer to a 4-year university after two years. - Place a Value on Money
Money doesn't buy happiness, but it can certainly make your life more comfortable. It's important to understand what it's worth. Money is what you earn in exchange for your time in some productive pursuit. Let's say you earn $20 an hour at your job and you're considering purchasing a TV for $500. You may calculate that you will spend 25 hours, or about 3 days of work earning enough money to purchase the TV. Think about bigger non-necessity purchases in this way and decide if it's worth it. Each purchase represents a trade-off. Make these decisions wisely! - Begin Retirement Planning with Your First Job
Don't wait to invest into a retirement fund until you have "extra money." Waiting to start a retirement account until you feel like you can afford it might mean that you can never retire. If the company you work for offers a 401(k) plan, sign up for it at your first opportunity. If there's no such plan, divert some of your paycheck into an IRA. Your retirement may seem far away, but you will get there and when you start planning for retirement early, you will have a much more valuable retirement plan than you would if you wait.
TIP: You can start by contributing just 2 percent of your salary. Soon, you can raise that percentage to 4 percent, and eventually to 10 percent or higher. Naturally, the more you earn, the more you can stash. - Find a way to Save - No Matter How Small
Open two bank accounts: checking and savings. A checking account is for month-to-month or short-term spending. A savings account is for long-term spending needs and for financial emergencies. it is important to start your own interest-bearing savings account. Don't let your money sit in your drawer or checking account - you will spend it. Instead, put some amount in your savings account each month. By doing this you will save a good amount of cash over a period of time. You may even ask your employer to delegate some amount of your paycheck directly into your savings account. This way you can save effortlessly.
TIP: Whether it's a little or a lot, putting your money in a fee-free savings account that offers interest is a smart way to grow your money.
Best Sources for More Information
- Determine Your Payroll Taxes
These payroll calculators will show you your gross pay, how much goes to taxes and how much you will be left with, which is also known as your net or take-home pay. - Understand Credit Card Interest
This Investopedia webpage explains credit card interest and includes a video that explains interest in a simple and effective manner. - Understand Financial Terms
This "Teens-Glossary" provides clear definitions for financial terms that might be confusing. - Understand Finance Management
The Money Under 30 website provides easy-to-understand information on getting a credit card; savings account; investing; paying of deb; buying a home; buying a car; tax software; your credit score; and checking accounts. - Money Management for People with Disabilities
Although this ¢ENTS and $ENSIBILITY Guide contains some specific information of Pennsylvania residents, it is a useful money management tool for people with disabilities. - Social Security Disability Benefits
Social Security disability benefits provide you with supplemental income. Applying for Social Security disability benefits can be a confusing process if you haven't done it before. The Ultimate Guide to Social Security Disability Benefits provides in-depth information on how to apply and how to calculate your disability benefit if you receive approval. - ABLE Accounts: 10 Things You Should Know
ABLE Accounts are tax-advantaged savings accounts for individuals with disabilities and their families. The beneficiary is the account owner and income earned by the accounts will not be taxed. This website contains clear information on ABLE accounts and also a series of videos. - Financial Literacy
Cornell Cooperative Extension (CCE) Albany strives to help individuals and families improve basic financial management skills to create improved financial futures and better access to community resources and programs. Their Financial Literacy web page provides information on various workshops offered by CCE as well as links to useful financial resources. - Good Calculators
The "Good Calculators" project is a group of high functioning online calculators which have been carefully programmed to work on computers, smart phones and tablets. The "Good Calculators" projects is ongoing and is meant for there to be a calculator for any needs, whether they be personal or business.
