Out of all the financial strategies to establish in adulthood, budgeting is a foundation that MUST be set! Budgeting allows to you see how much money is coming in and out each month. A basic budgeting formula is the 50-30-20 rule:
- 50% for fixed expenses such as housing, food, and insurance premiums
- 20% for financial goals like debt payments, saving retirement, emergency funds
- 30% for variable expenses such as shopping, entertainment, and travel.
2. Saving
Another critical strategy to establish is the ability to save. Part of the budgeting process should allow for some of your income to be saved (the 20% part). Think of saving as "paying yourself first". This makes the process automated where you save before you spend for the month.
3. Reduce Your Debt
Now there are many opinions on if debt repayment should be an important thing to tackle in your twenties. On the one hand some think its more important to establish yourself financially before attacking those debts, especially if they are like students loans, which you will probably paying for the rest of your life. But I disagree. Grabbing your debts by the horns allows you to save over time by reducing how much interest is built up on the loans. It also helps build your credit score by showing your responsibility in handling loans.
These three strategies will build the foundation for making smart choices, creating financial freedom, and a strong financial future!
This is a really interesting blog idea! It's a shame that in school we aren't taught how to budget, save, or reduce debt- three things I think are really important to know about! I myself am pretty good with budgeting and saving, but I never heard of the 50-30-20 rule until reading your blog! It makes a lot of sense though and I think it's reasonable to be able to put aside 20% of your income for any financial goals, or just in case something unexpected happens and you need the money for something. As far as reducing debt, I know I'm going to have quite a bit once I graduate college, and as a junior it's definitely a good idea for me to start paying attention to the best way to approach it now. I've heard of both establishing myself financially first and grabbing debts by the horns and I've wondered which would be the better route. However, I definitely agree that it would be better to work on the debts immediately, since it would build your credit score and I think it is much more realistic since I personally won't be financially stable at least for a few years. Really interesting read- thanks!
ReplyDeleteI'm glad you like the idea! Establishing your finances and paying down debt is a great habit to start in your early twenties! You're on the right track!
DeleteI think that this information is very helpful. Being a senior in college, we really don't realize how we are about to be thrown into the real world. We won't have as much financial support from our parents. We will have real jobs and be forced to take care of ourselves. So this is when budgeting and saving money really becomes important. We have to start building for our future.
ReplyDeleteGreat blog! I have always heard that these topics should be taught in high school or college (but these were never my classes) and I always thought that they were. But when I think about it, I always learned the financial stuff from my family (where one is an accountant and two are financial advisors). I don't think others have access to this useful information and I am glad you are blogging about it!
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