If you are in a position today where you don’t have a lot of disposable income (or any), it may seem like saving money is a long way off or even nearly impossible.
According to a 2017 GoBankingRates survey, 67% of young Millennials (18-24 years old) have less than $1,000 in their savings accounts and 46% have none.
It may also seem like that dream vacation is light-years away. But the art of budgeting and achieving your ultimate financial goals stems from making goals which are achievable.
So, let’s get started on saving strategies.
Understand Your Budget
The first step in finding a path towards financial freedom is understanding how much money you bring in and how you are spending that income. There are basically three types of expenses: living, obligations, disposable.
Living expenses include everything that you need to live. This is your home, utilities, food, clothes, etc. Your obligations are things that you are required to pay, like your car loan, your student loans, etc. Finally, we have your disposable spending which includes dining out, movies, coffee, and drinks with friends.
Only when you understand your budget and how you are spending your money can you really tackle setting and achieving goals.
A good rule of thumb is to spend no more than a third of your gross income on rent. Any more than that and your budget is going to be very unbalanced.
Set An Achievable Goal
If you are one of the 46% of Millennials with little to no savings, your first goal should not be to save $10,000 in a year. While it is possible in some situations, you want to set goals which you can achieve.
An achievable goal could be to pay all your student loans on time; or better yet, pay $10 more each month on those same loans. Perhaps to make that happen you will need to cut out one lunch out or a few coffees throughout the month. It is amazing how quickly those expenses can add up!
Whatever goal you set, make it challenging for you. And once you achieve it, set a new one!
Take The First Step
Now that you have the goal set, it is time to step into action.
If you reviewed your budget and saw you were spending too much on your rent, it is time to start researching a new home. Moving is never fun, but it makes no sense to spend more than you need to on rent.
Or maybe your first step is to cancel your credit cards or call to get a better payment plan for your student loans. You just need to take the first step.
Pay Down Your Debts
Most Millennials have one massive debt: student loans. You may also have a car loan and credit card debts, too.
You need to start by writing down all of your debt obligations, the minimum payments on them, and their respective interest rates.
The first thing to look at is the total balance due on all your loans. This is called the “debt snowball”, made famous by Dave Ramsey. You start with the lowest balance and put a little extra into those payments while still paying the minimums on your other debts. Once that debt gets paid-off, you take that money and pour it into the next smallest loan, thus creating a snowball of debt payments.
Ultimately, you must stay focused. That doesn’t mean that you don’t have fun with your money but it does mean that you are smart with your money. You have goals and you need to remain focused on achieving them. If, in order to reach your goal, you needed to cut $100 out of your monthly spending, make sure you do and that those dollars go toward your goal.
There are two great resources to help you get started:
You Need a Budget: This is a beginners tool to help you get started in managing your budget. This app is easy to use because there aren’t a lot of bells and whistles with this site.
Mint.com: This site is one of the most robust around and it a part of the Intuit family. This app lets you set budgets, connect nearly every type of financial account you have and provides great reports.