When you’re new to financial independence, it can be hard to find your footing. It can feel like you’re doing everything you can to assure you’re on firm ground, but still aren’t quite there yet. Here are the several reasons why you’re still a broke 20-something person.
- You Don’t Have a Budget
Having a budget for yourself is a basic rule of personal finance. While you’re still trying to get a hold of your newfound financial independence, you might neglect to set a monthly budget for yourself. Make a point to sit down and take a look at what you typically spend in a month and budget accordingly.
A basic rule to start your budget with is the 50-30-20 rule. Try breaking up your expenses by fixed necessities, debt management, savings and wants if you find more specific categories do not work well for you. Your budget might take the form of an excel spreadsheet or a notebook. Find a form that works best for you. There are several budgeting apps to keep you on track.
- You Don’t Contribute to Your Retirement Plan
When you land a job that offers you a 401(k) or other retirement plan, take advantage of it. You might get your first paycheck and hate the thought of yet another deduction, but you will thank yourself years down the road. Even contributing a small portion, like 3 percent, puts you in a much better place than contributing nothing. Many employers also offer to match their employees’ contributions. Be sure to look into your employer’s policies and options.
- You’re Keeping up With the Joneses
This is hard to manage at a stage in life where you might find yourself in different financial circumstances than many of your friends. Though your friends might be moving to the trendiest neighborhoods, becoming members of expensive gyms or going on vacations, you need to make your financial decisions based on your own needs and means.
When making major financial decisions, like moving, or even smaller ones, like where to go for a dinner out, check in with yourself and make sure this is within your limits. You don’t want to get caught up in making decisions based on what other people are doing or to give others a different impression of yourself.
- You’re Not Paying Your Credit Card Off
While a credit card can be a great lesson in managing monthly expenses and bills, it can turn into a major problem if you don’t pay it off each month. As of 2015, the average American household credit card debt lingers near $15,000. It might be tempting to put off that bill for when you get your year-end bonus, but you could be digging yourself into a risky hole.
- You’re Not Effectively Managing Your Debt
With the average class of 2015 college graduate leaving school with a little more than $35,000 in student loans, managing that debt can be a daunting task. Many accept the standard 10-year repayment plan for their loans without considering other options. Though this is a manageable plan, you could be paying more in interest over that decade.
Take the time to learn more about your loan (type, benefits/impact of early repayment, interest rates, etc). If possible, paying extra on your loans each month could reduce the interest you pay over time. It might seem difficult to fit into your budget, but will save you in the long run. If the standard repayment plan does not work for you, consider looking into income-based repayment plans, refinancing your loans or, if you qualify, public loan service forgiveness. What’s most important is you do your research, and pick the plan that works best for you.
- You Haven’t Asked for a Raise.
A shocking 62 percent of recent college graduates do not negotiate the salary of the first job they’re offered. Though it might seem like landing the job itself was a grueling task, negotiating your salary could leave you in a much better financial position. The same goes for those who have been in a job for a while. What’s the worst that can happen? Someone says no and gives you the signal to start looking elsewhere.
- You Haven’t Looked Into Investment Options
While you’re young, investing could seem pointless. After all, how much could you invest in the first place to see a worthwhile return? Even if it’s a small amount, investing while you’re young can make a considerable difference for your future. Since you’re young, you could also feel in a more secure place to make riskier investments, ultimately earning you a greater return. Apps like Betterment and Acorns make investing as a twentysomething automated and manageable.
- You’re Constantly Eating Out
How good is that $10 salad you’re buying yourself for lunch every day? Whether you’re buying lunch or ordering takeout regularly, eating out all the time adds up, fast. Cooking for yourself can save you money and keep you in good health. Spending as little as $25 at the grocery store can get you a few simple, healthy meals.
- You’re Going Out Constantly
Like those lunches and takeout dinners, the happy hours with co-workers and drinks with friends can add up quickly. Although it is tempting, you don’t have to accept every offer you receive to go out. There are also plenty of fun, budget-friendly alternatives to going out to socialize with friends and co-workers.
- You Haven’t Adopted a Side Hustle
Maybe you’re saving a good amount and living within your budget, but still not happy with your financial standing. Consider adopting a side job to supplement your income. Anything from babysitting to waiting tables to freelancing can help you earn extra money without taking up too much of your free time.
- You Value Quantity Over Quality
You find it hard to resist a good sale, but do you really need four new tops for the price of two? A good deal is hard to pass up, but you’d be better off holding out and only purchasing quality clothing and other items when you really need them. Try to unsubscribe from flash sale and other promotional emails. Only seek out retailers when you need them.
- You Moved Out on Your Own Right Away
You might’ve moved away from home for a job, degree or to explore a new area. This can be an exciting time to do so, but if you have the option, living at home with your parents is a great way to save. Depending on how lenient your parents are, you could find yourself able to put away much more of your disposable income and spend quality time with your folks. It might not be the most glamorous lifestyle, but it leaves you with more financial freedom in the long run.
- You Don’t Do Your Research
You don’t shop around when making purchases or a commitment. You might join the gym closest to your home or do your grocery shopping at the nearest store, without considering more affordable options. Explore your options and don’t settle for the most convenient choice. Though something like groceries doesn’t seem like much, it adds up.
- You Spend What You Think You’ll Make
If you’re not budgeting, chances are you are spending based what you estimate you’ll be making. In this case, you may be overspending and not planning ahead. You should always aim to spend within your current means, not what you think you might make.
- You Don’t Have an Emergency Fund
One basic personal finance rule is to have an emergency fund. This fund should consist of three to six months of expenses, which you can use for unexpected conditions you might find yourself in. Whether you are suddenly unemployed or have an unanticipated medical bill, an emergency fund gives you more freedom and flexibility.
Any of these sound familiar to you? Making small changes, like bringing your lunch to work instead of going out, can make a considerable difference. Try taking baby steps and you could find yourself on firm ground quicker than you thought.