First of all, you finally managed to get this job and notice that direct deposit has landed into your bank account. Of course, you feel like the winner of a lottery. But do not rush to order a custom gaming PC and book the flight to Tokyo immediately. Being an adult is expensive, and if you forget about that fact, you are going to see how badly your bank account suffers very soon. 🤑
The first step you have to make is to figure out what kind of expenses you have. You can use different apps such as YNAB or Mint to keep track of all the money you spend. Guessing won’t work because you need to know the precise numbers of your expenses. You will have to spend a month tracking every single cent because you need to see a complete picture.
It is obvious that nobody loves math. However, the 50/30/20 budget rule must become your main motto. Half of your salary should be spent on needs (rent and food). Thirty percent will be spent on entertainment (concerts, sneakers), and 20% will be used for saving. If you are spending 60% of your salary on rent in San Francisco or Brooklyn, then something is wrong and you have to fix it.
Now comes the moment that nobody likes to hear. The first step you should do after receiving a paycheck is to pay yourself. You will have to transfer the money to your savings account automatically and act like you have already spent them. Your emergency fund should cover three to six months of expenses. Unpredicted things happen in our lives and you should have some money set aside. 🚗
Credit cards don’t mean free money. You should try to repay the debt in full. Otherwise, you are just giving money to the bank for nothing because interest rates are ridiculous and you will suffer from them if you are going to pay just a minimum amount. Another thing you should do is to check if you have 401k match in your company because it is your free money. Not using it is a real sin. 💸
Being strict to yourself in terms of budgeting allows you to buy some extra freedom. You no longer have to think about each penny and every single purchase that you make. You have enough money to spend on your vacation or on a party without any stress. Moreover, by following the plan, you can even retire early. Or at least be able to buy yourself an avocado toast. 🥑