A friend of mine was venting to me recently about her money problems, which in a nutshell went like this: “I’ve been working for a decade now and make good money, but I don’t seem to have anything to show for it. Although I’m earning a lot more now than I ever have I don’t know where all the money goes…”.
If this sounds like you there are some simple things that you can do to take charge of your money, but remember just because they are simple, doesn’t mean they are easy!
To improve your relationship with money, you need to shore up your defense and then get on the offense.
Here are the 5 Essential Financial Hacks for Young Professionals that transform money management from being a gruelling, dreadful task to becoming something you really enjoy!
Set a Goal & Make a Plan
Think big, start small, and act now. Decide what you want in life and what you need financially to do that – this could be anything from achieving total financial independence, to ticking off all the items on your bucket list, to paying your parents back the hundred bucks that you borrowed. Remember, money is a means to an end, not an end in itself. If you are struggling with debt, add up what you owe, set a timeframe to pay it off, and work out how much you need to pay off each pay to make it happen.
Pay yourself first
Although it is great to pay down debt, paying yourself is the first thing to do. As humans, we tend to spend first, save next and invest last. The problem with this is that there’s usually very little left to save let alone invest! The way to fix this is to change the equation – save first, invest next and spend last. Ideally, we want to allocate 20% of our pay to savings and investing (this is how you get enough money to do the stuff above) however start with whatever you can. This has a threefold effect – you build up an emergency buffer, you will start allocating money to be able to take advantage of future investments when they arise, and you’ll change your mindset to being in charge of your money.
Invest in yourself
I like to refer to the above as ‘playing defense’ and getting the foundations in place, now it’s time to get on the front foot. Investing in yourself involves increasing your skills to increase your earning potential – courses, classes, books, etc., that are related to your work or something that you can do on the side. Learn about investing and money so you understand the basics and get advice; a coach or a mentor if that’s going to fast track your success. Allocate money each pay into a separate account for this, even if it is a small amount – I started with 2% of my net pay when I graduated which was enough for a new book each week. This will most likely be the best investment that you will make.
Once you have done the above, automate everything. Set the % that comes from your pay to go to your savings account, investment account (this could be your super fund) and ‘personal growth’ account. Have the amount that you need to pay down any debts automated from your bank as well – this can all be set up to be done the day after you get paid. Have an account for food & bills, including rent if you are renting, where a set amount goes each pay to cover all of your bills. From here you can spend the rest of your pay knowing that you have your finances on cruise control.
It took me a while to learn this but we can go a lot longer when we reward ourselves along the way, not just at the end. Small incentives work – set small targets along the way to your big goal and reward yourself along the way (no credit cards or After Pay though!).
These are simple steps for a reason. To become great at something it’s better to do 5 things 1,000 times rather than 1,000 things, 5 times. The same is true with your money – get good at the basics and you will feel in control of your money and soon enough, will be ticking off all those items on your bucket list.