6 Financial Planning Tips for Beginners
You probably have a dream life you’d like to have. Maybe you want to move to the big city, spend weekdays in the office and weekends out with close friends. Maybe you want to settle down and have a family with your significant other soon. Maybe you’re thinking of traveling abroad to immerse yourself in a different culture.
Whatever your dream life is, you won’t get there without financial planning. While it may be scary, learning how to manage your money is a part of growing up. Getting started as soon as possible will not only give you time to master the art of saving and budgeting, it will also give you the freedom to do what you want with your life.
To help you get started, here are 7 tips for start your financial glow-up:
1. Track Your Spending
Tracking your spending is the first and most crucial step in taking control of your finances. When you know exactly how you’re spending your money and how much, you can start planning for the future.
It doesn’t matter where you keep track of your spending as long as it works for you. You can use a notebook, a memo page on your phone, or a spreadsheet. Track how much your income is and how much you are spending. Make categories for different types of spending such as groceries, rent, and entertainment subscriptions. Decide what spending is essential and what isn’t.
Here’s a quick trick for deciding what spending is essential: Ask yourself “If I didn’t spend money on this, would it become a problem?” For example, if you didn’t spend money on rent, you would likely be evicted. That’s a serious problem.
Tracking your spending can seem like a drag, but it’s an important habit to build if you want to become financially secure. Remember to track every time you spend money even if it’s only a few dollars. If you don’t want to log your spending in real time, keep receipts and build time into your schedule every week to input your spending. You want to know as much information as possible so that you can make the best financial decisions.
2. Start Thinking and Saving for the Long-Term Now
For many young people, it can be hard to think of what you want in the future when you’re still trying to figure out what you want to do right now. However, this doesn’t mean that you shouldn’t be saving money.
Whether it’s for a car, home, retirement or the post-pandemic vacation, it’s never too early to start saving up money. Even if you don’t have a specific goal, save money anyway so that when you do figure out what your goals are, you’ll have the financial means to achieve them. Think of saving as an investment into yourself. You’re worth it.
Make savings accounts for different goals and consistently pay a certain percentage of your paycheck into each of them. Saving 5% of your income is a good starting point. As your income increases, you should increase the percentage of your income that you put into your savings.
To make saving even easier, most banks allow you to set up automatic transfers into your savings account when you get your paycheck.
3. Create a Budget
Once you’ve tracked your spending for a while, it’s time to sit down and make a budget. There are plenty of budgeting methods that people have found successful like the traditional line-item budget, 50-30-20 method or the Envelope method. Try out different methods and see which one fits you best.
If none of the popular methods work with your goals and lifestyle, adjust them so that they do.
Remember to budget according to the habits and lifestyle you already have instead of the life that you want. Be realistic about what you are actually likely to do with your money and what you can afford. For example, you shouldn’t budget money for buying a lot of groceries if you’re more of the type to eat out. By budgeting for your actual lifestyle, you’ll be able to see what habits you may need to change or which habits you fit into your financial plan.
4. Use Personal Finance Apps
Let’s face it: many of us are on our phones more than we’d like to admit. But you can use this not-so-great habit to your advantage and facilitate good financial habits. There are plenty of personal finance apps out there, making it easy to manage your money no matter where you are.
If you want help with budgeting, try out Mint, Simple, or You Need a Budget.
If you want help with savings, try out Albert, Qapital or Twine.
And for when you are ready to join the big leagues, you can try investing with a robo-advisor like Betterment or Ellevest, a financial company run by women for women.
There are also plenty of apps that aren’t mentioned here that you could try. Do some research and find what works best for you.
5. Don’t get into the habit of buying now and paying later
Recently, “Buy Now, Pay Later” programs have grown in popularity because they allow people to shop and pay for the products in installments. Using these programs is similar to using a credit card, but instead of owing money to a credit card company, you owe to the company that runs the program you use.
Credit cards and “Buy Now, Pay Later” can be useful in a pinch, but the immediate gratification of a shiny new thing isn’t worth building up a debt that you can’t pay back.
Instead, try saving money for big non-essential purchases. Saving the money to buy something will not only help you cut down on spending, but it will also give you time to think if the purchase is really worth it.
6. Be flexible
This last tip is crucial if you want to make your financial planning experience positive. As much as consistency is important to good financial planning, so is being flexible. Life changes, and so will you. Learning how to adjust to new circumstances and reevaluate your goals is incredibly important for your financial success.
Sit down every few months and congratulate yourself on your progress towards your goals. Reevaluate your goals, and then adjust your savings and spending accordingly.
Some months money is going to be tighter than others. Sometimes you’ll have to dip into the savings account. Sometimes you really want to treat yourself to something nice. That’s ok. The financial planning you’ve done beforehand will prepare you for these moments.
It’s important to be on top of your money, but remember that the amount of money in your bank account isn’t the same as your worth as a person.
By Sam Nguyen
