When you’re starting out in your adult financial life, it’s easy to end up in reactive mode: react to the next bill, the student loan notice six months post graduation, or even positive events, like a raise or large tax refund. The problem is that your 20’s are the time to be creating the habits that grow with you, and in your financial life, the habits you build young have a growing impact as time goes on.
It’s tempting to think, “Oh, well I’ll figure it out when I make more.” but that mindset leads to an uphill battle against ingrained habits. With that, here are 5 money habits to master, regardless of if your income is $25,000 or $125,000 per year.
Ignorance Is NOT Bliss
I talk to a lot of young people who feel overwhelmed by their financial obligations, and that stress leads to inaction. Bills go unopened. The e-mail from HR about open enrollment gets buried. The fun vacation gets put on a credit card because well, you can figure it out later, right?
This works for a while but as problems stack up, it’s a recipe for mounting stress. And what happens when you stress? You freeze up. Do nothing. And the cycle continues. Prioritizing learning about your financial obligations when you’re young will set you up to be successful as those obligations (and income!) grow.
Dedicate Weekly Time To Your Financial Life
The easiest way to stay on top of all of your finances is to have a set time each week or bi-weekly that you sit down and review everything. Track your spending. Pay your bills.
You make a plan to pay for that wedding invite you got in the mail, buy the gift for your friends birthday, and fill out the paperwork you need to do on your income driven repayment plan. By setting a dedicated time, you can live your life all week long and enjoy it, because you know you’ve got a set time to plan ahead on your financial decisions.
If the idea seems overwhelming to you, a good strategy is temptation bundling, or coupling this task which may be difficult, with something that you desire. Love Game of Thrones? Great, you’re only going to watch the next episode after you’ve completed your weekly meeting.
For me, I started holding this weekly meeting with myself at my favorite bagel shop. It made the meeting immensely more enjoyable and it meant I only went there once a week instead of 2-3 days per week.
Use The 80/20 Rule For New Influxes Of Income
When you get a sudden influx of income, you need a plan for what you’ll do with it. Whether you got a raise, started a side-hustle, or finished paying off a recurring monthly debt, it’s vital to deliberately decide what you’ll do with that new money. Without a plan, it’s likely that at the end of this month, your bank account will look the same as it did last month.
The 80/20 rule is simple: Dedicate 80% of your new influx to debt repayment or longer term savings, and use 20% to live your life. Finish paying off a student loan that was $150/month? Congrats! That’s great! Now, figure out where to spend the $120 amongst your other debts or savings goals, and treat yourself to whatever’s going to make you happy with the remaining $30/month.
While the amounts may seem small, this habit is vital as your earnings increase and the pressure to keep up with others lifestyle mounts. Building the habit now means that when you get that job that takes your salary from $40,000 to $60,000, you’ll make good use of the raise in ways that are long-lasting, instead of looking up 6 months later and realizing your lifestyle grew in equal proportion to your salary.
The Only Budget That Matters Is Yours
Your friend is on a yoga retreat in Bali and posting Instagram pictures all day? Maybe she saved aggressively for two years. Maybe she doesn’t have student loan debt in the way you do, lucky her. It could be she hasn’t saved a dime for retirement, while you’ve been putting money away since graduation. Or maybe she’s funding it on credit cards and will be stuck with debt from this trip for 3 years.
From the outside, you don’t know, and it doesn’t matter, because your money decisions are the only ones you need to be worrying about. Building this mindset early will help you avoid some of the biggest budget killers that come later in life, as the “Keeping up with the Jones’” mentality can lead to buying way too much house or cycling through luxury cars every few years, and not actually being any happier despite that spending.
Experience > Stuff
Time and again research is clear that people get longer lasting happiness from experiences than they do from buying tangible items. The earlier you start, the easier it will be to fight temptation to spend lavishly on all the “stuff” we’re told we need. I want to be clear that the point isn’t to deprive yourself or live like a pauper.
You work hard for your money, and that’s precisely why you should take time to plan for it so it goes to the things that have a lasting impact on happiness. For most of us, the thrill of the new clothes, or phone, or fancy car wear off in a remarkably short period of time.
Just like anything else, healthy money habits take practice. You’ll screw up, you’ll learn, you’ll get better. Starting early in establishing these 5 habits will pay off big time as you advance in your career and the decisions take on larger consequences, or if you’ve been able to build these habits, larger rewards.
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Ryan Frailich is the founder of Deliberate Finances, a registered investment adviser in the state of Louisiana. You can follow him on Twitter or like his page on Facebook here. Information presented is for educational purposes only and should not be relied on for investment or other financial decisions. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.