It’s a strange phenomenon to wake up one day and realize you’re no longer living paycheck to paycheck. Of course, it’s a fabulous privilege--one that many people never get to experience. And yet, it can still be incredibly intimidating.
Do you stick with your old, penny-pinching strategies or create new plans for managing your money? Is it time to invest? And if so, how do you determine what qualifies as a wise money-making venture?
(Disclaimer: there is no way to do money; it depends on what works for you.)
The following strategies prove to be consistently effective. Read on for tips that will help you maintain your hard-earned financial freedom while living in style.
1. Don’t Suddenly Start Living Outside Your Means
Your excitement is understandable. After many years of eating ramen and bumming other people’s Netflix, having a bit of financial stability can feel intoxicating!
“Bartender, a round on me!”
It’s okay to splurge every once in awhile. What you want to do is live so extravagantly that you end up in debt. Now is the time to sit down and contemplate your priorities. Besides covering all your living expenses and putting money into saving, what do you want to do?
Do you love to travel, attend concerts, eat organic produce, give to charity? Can you carve out a savings space for these endeavors? Align your personal goals with your financial ones, and you’re less likely to spend on unnecessary stuff. The only way to make this work is by...
2. Creating a Budget
I can hear you groaning from here. Okay… budgets sound stuffy and tedious and generally awful. But budgets are SO useful, and they allow you to achieve your dreams while maintaining financial stability!
First thing’s first; track all your expenses for an entire month. You can do this the old-fashioned way by saving receipts or by setting up a money management app like Mint or Daily Cost.
Then, create categories--bills, grocery shopping, entertainment, clothes, healthcare--and determine how much you’re spending on each column.
If you’re allocating a huge chunk of change to entertainment--video subscription services, nights out, concerts, dinners, etc.--maybe it’s time to cut back. If your entertainment expenses are non-negotiable, you’ll need to save in other categories (clothes, groceries, etc.) in order to maintain this kind of financial commitment.
Make some decisions about what is most important to you, and spend accordingly. Look at it as an exciting challenge. How can you align your vision with your reality?
Budgeting helps you prioritize goals
Think about milestones you’d like to achieve. If your goal is to buy a car, set up a savings account specifically for that purpose. (You can also stuff money in a “car savings” piggy bank, although this doesn’t include loss prevention.)
To get an idea of your monthly car-fund investment, divide the cost of the car by the time (for example, $10,000 divided by 24 months). Then you’ll have an idea of your needed monthly contribution. If you want to take out a lease, see if the monthly cost (say $200) can fit into your budget.
The best strategy for living up to these goals and covering your monthly living costs? Put the money in immediately after payday and leave it alone. Then, consider…
3. Automated Bill Pay
If you have the resources, it’s a good idea to set up your monthly billing so that they basics are paid electronically.
That way, you know the essentials are always taken care of. (This is also a great strategy for preserving your credit score during times of emotional stress and/or emergency.) So what should be set up automatically? Utilities and rent/mortgage payments and any other consistent, monthly expense, and even your special “goal” fund.
Oh, and don’t forget the payments which must not be named. Just remember, your liberal arts education helped you develop into the intelligent, compassionate human being you are today, even if it does feel like an albatross at times!
4. Automated Retirement Accounts
It may seem crazy to start planning for retirement now, especially if you got out of the red. However, it’s also one of the best decisions you can make.
Contribute a portion of your monthly earnings to either a SEP IRA or 401 K. Then--here’s the catch--don’t touch any of that money! Leave it alone and let it accumulate interest. If you set up the account to ensure a percentage of your income automatically re-routes into your retirement funds, you’ll start to accrue a substantial amount of dough!
Some experts recommend that retirement savings should start in your twenties. However, this isn’t feasible for everyone. Do your best to start saving early. The real deciding factor might be your ability to save consistently.
5. Do More Things Yourself - Gain Skills, Save Money
- Learn to Cook
Not only is cooking a necessary life skill, but it’s also way less expensive than eating out every night. And eventually, the money you save by cooking at home amounts to huge savings.
Think about it. Whipping up a meal may require extra time commitment, but it usually yields leftovers. Plus, inventions like crock pots and rice cookers make the process easier. And not only will eating at home save you money, it’s also a lot healthier.
Making your own meals allows you to control exactly what goes into your dinner. It’s more sustainable (you use less disposable silverware, plates, and napkins) and it also doubles as an inexpensive form of entertainment. Check out some of these cookbooks for beginning chefs on a budget. Bonus: culinary skills can land you a date! What’s more romantic and sensual than someone who can wine and dine their date, no help required?
- Don’t trash it! Fix it!
Learn how to repair things around the house, and you could save yourself a bundle. Pinterest and Youtube are full of step-by-step guides on repurposing old objects, recipes for creating your own cleaning supplies, and tutorials for repairing appliances and generally DIYing your entire life.
- Make Good Investments
If you’re going to invest at this stage, the best places with the least amount of risk are your retirement fund and savings. Additionally, it’s wise to invest in your own health. This might include joining a gym or purchasing health insurance if it isn’t provided through your workplace.
If you’re in the position to do so, you might consider buying a home. However, keep in mind that traditional ideas of home ownership are shifting. Remember, the duration of your residence and the fluctuating nature of the market should both factor into your decision to rent or put a down payment on your own place.
6. Remember to Think Critically Before Splurging
The little things really do add up. Before you purchase a new item, ask yourself:
● Do I really need this?
● Do I already own something similar, and if so, will I have to get rid of something to make room for my purchase?
● I’ve been getting along fine without this up until now. Why should I buy?
Be a critical consumer, and eventually, you’ll be a savvy saver.
Balance is Key to Financial Freedom
Between budgeting, saving, and investing wisely, you should be able to maintain and grow your increased income. Now go out and make the world your oyster!