In 2019, as I mentioned in my first blog post. One of my goals that I want to focus on this year is creating a financial plan for my 20’s.
There are a few things that I have discovered trying to get my finances in order like Dave Ramseys Baby Steps and also things on the side that I have been doing to help me stay on top of my finances.
I have found that these little things can really help when getting my finances in order because having financial freedom means that you aren in control of your money instead of feeling like a victim of your circumstance. You can use that money to travel, to be able to treat out family and friends to a dinner, to give freely.
Background
I don’t know about any of you guys, but I wasn’t really thought about finances and how to manage my money wisely. I mean, yes my parents thought me that first you had to pay for things like bills and food and that everything else was extra, but I was never really thought how to create a budget or how to save for a rainy day. Like most American I found myself living paycheck to paycheck.
In college, I had a part-time jobs that was very helpful because I didn’t have a car and had roommates and always tried to cut back on my expenses I was able to manage my money fairly well.
However, once I was going to graduate school I decided that I need to know about the “real” world and learn about getting my finances together. In my last semester of school I decided to take a personal finance class to educate myself on how to purchase a car or even how to create a budget for myself.
Honestly, I didn’t really take a lot from that class. I had already done my fare share of research on how to create a budget and that was what we were thought for the first two weeks of class. And when the teacher started talking about investing. Suddenly she was speaking pig Latin to me because I was just trying to figure out; How am I going to pay off my student loans? What do I need to purchase a car?
So here are a few tips that I have learned about managing my money in my 20’s and hopefully this isn’t pig Latin for anyone else and you can take something from this that can help you out.
01. Know You’re Why
This is very important because knowing you’re why, why you’re choosing to go through this journey is going to make or break you. Their will be days and weeks where you will be tempted to blow it all away and go back to your old ways, but knowing your why will bring you back to what your goals are and how important they are for your to get there. Keep your why present. Visualize by using a dream board and look at it every single day and believe that it is possible. Keep your why present at all times.
02. Dave Ramsey
I had tried a few things to budget myself and keep my finances down. In December 2018, I discovered one of his videos and spent the whole month learning about the Baby Steps. Right away I made it my goal to follow Dave Ramseys Baby Step system and was able to complete baby step 1 right away because it was the Holidays and asked family for money instead of gifts.
Here is how the Baby Steps go:
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Save up $1,000 – This is a starting point, this is for a rainy day fund. In my opinion, this gives you enough money so that you don’t get more into debt. This money is only to be used for a real emergency like a flat tire or anything that is causing havoc.
- Pay off all your debts – Not owing anyone money means that you can start using money for things that matter to you. Yes, you still have to pay bills like rent/mortgage and groceries. However, you are no longer tied by credit cards, by car loans, or students loans. Or any type of loan. period. You start off by paying off the smallest amount and working your way towards your biggest debt. And slowly you will be out of debt. This is where I am currently at and it’s probably the hardest step, but the end will be the most rewarding.
- Start saving up 3-6 months of expenses – This is where Baby Step 1 grows. That money that you use to use for paying off debt can now be a located towards savings. Ideally 3-6 months of expenses in case of an emergency, you have the money to figure things out.
- Invest in retirement – This can be very intimidating especially for most of us in our 20’s let’s face it, not long ago we were going through our car and in our wallet looking for change to put in the parking meeter,(this was me two days ago) so when someone say that you should invest money for retirement we all look like a deer in a headlights. In simple terms, you want to start saving now as much as you possibly can for later. Even if it seems like a life time away starting to save even the smallest amount can make a big difference. For more information I highly recommend for you all to check out Daves videos on the topic. He explains it better than I do.
- Start saving for a deposit for a a home with a 15 year fixed mortgage rate – his last few baby steps recommend to start a college fund for your children. Which don’t currently apply to myself because I don’t have any children, but when I do I will start having a college fund for them and also the last step is to pay off your home early. Again, I don’t currently have a mortgage so I wouldn’t say that this is my step. For me, I choose to instead start a saving for a home in the near future and having more options by having more than 20% of the down payment. There is a whole lot of information that he gives for one of the biggest expense out there, a home.
Overall
The Journey is not just about creating a budget because yes we should all know where our money is going but also it is about increasing our income. Try little temporary jobs like baby sitting on weekends or dog walking all of these things can make a big difference and they are temporary to try to get out of debt.
What I like about the Baby Steps is that they offer a simple plan for your money. It starts with looking at the problem. This is how much you owe and this is how much is being taken out of paycheck. This is how much you are waisting on things that are not necessary and this is what is left at the end of the month. And then you create a plan of attack and strategies so that you can be in control of your money. It’s not about interest and paying off the interest first. It’s about creating momentum that will stick and keep you motivated to lower your debt more and more.
When you have made it out of debt you start to see your goals clearly. Now that you are out of debt, you know the crappy feeling and you don’t want to be in that situation again. By creating a safety net to fall on when emergency’s pop up is important.
Dave has a few books out that I want to read this year. I could do a book review if any of you would like, let me know in the comments below.
Other things that have helped me
Excel or Paper Format
I like creating a spreadsheet of the whole year and see how much money is coming in and how much money is leaving my account. Why is it important to have a spread sheet? Because allocating a place for your money is what will make sure you stick to your budget and also use what it left for savings or towards one of your baby steps.
If you would rather have it on paper, I also really like creating a list with a blank paper of expenses and how much money is coming in and leaving. I personally use both, sometimes I have my computer with me other times I don’t It just depends.
There are some apps that I really like to use as well, If you want me to write a while post about it. Let me know in the comments below.
Finally words
I truly hope this helps answer some questions for you all since I know that when I was in my late teens and early 20’s I was so confused with how to manage my money and even where to start. I would like to say that in whatever state you are in be grateful because it is teaching you some valuable lessons about money. I know that I have learned allot about finances through trial and error.
