Wednesday, June 30, 2010

Finacially Independent

One of the things on my 30 Before 30 list is to pay all my own bills with no help from my mom.  I know, I know..I'm spoiled right?  I just got in the habit of my mom covering my gas and my car insurance since I was 16 and I've just never been able to cut that cord because I was afraid.  I was afraid of failing financially and that was my safety net.  But starting July 1st I am going to try!  For the first time in my life I will be paying ALL my own bills on a consistent basis.

Money is a really tough thing in your 20s.  You aren't making crap and you suddenly have all these bills.  It takes a while to learn how it all works and it is so easy to get out of control in your 20s and spend the rest of you life paying it off.

You look around at your friends and feel like you have to keep up with what they have.  First it is the cute clothes and designer purses.  Then it is the car and the house.  Before you know it you end up in over your head thinking what did I do?

Then you have the fun factor to deal with.  Your 20s is when you are supposed to be living it up.  You have so much freedom so you should enjoy it right?  Drinks after work, dinner out with your friends, concerts, movies, and that big game you just HAVE to go to end up draining your bank account.

Then you have the trips.  I mean what other time in your life will you have so much freedom to just get up and go?  You want to see the world!  You take a cruise for Spring Break.  You trek across Europe after graduation.  I mean this is what happens in the movies to 20 somethings just like you, so why not you??

One other thing that I have not had to deal with yet, but could pop up in your 20s is children.  I can't even imagine the drain that puts on your bank account!

Soon you start to realize there are so many boring important things you have to cover as well like insurance- health, car, home!  Then you have 401Ks to fund and oil changes and then your dishwasher quits working and suddenly all your "fun" money has gone to boring grown-up stuff.

It is a lot to figure out and it has taken me over 10 years to feel like I finally have some control over my finances.  And that took a lot of falling into deep money pits and pulling myself out of them (sometimes with a little help!).  I racked up $2000 on a credit card in college.  I got laid off and after months of looking had to take a job at a 30% pay cut and figure out how too make ends meet.  But all that has taught me so much that I would have never learned without the unexpected and unimaginable actually happening to me!

I'm no financial expert, but I have got some things down now.  According to Charles Schwab's Financial Fitness tool I am in pretty good shape with a solid score of 76.  So here are some of my financial tips for 20 somethings:

1. Pay off your credit card balance EVERY MONTH!  If you are in debt to credit card companies, make a plan and pay them off immediately.  Go on a "spending diet".  Pay off the one with the highest interest rate first and work your way down.  Once you get them paid off only use them for big purchases (to get the points, rewards, or discounts) and then pay it all off when the bill comes.  I say only big purchases because they are not easy to forget.  If you use them on everyday things like a trip to Target or a dinner out, it can add up quickly and you might not have enough left at the end of the month to pay it off.  A big purchase ($100+) is not as easy to forget and you can just keep that set aside and pay off the bill when it comes (or even better, go right home and pay it off online before you forget!)  You want to use credit wisely like that so that when you need a loan for something big like a house or car, you will have the credit score that proves you know how to pay your bills on time!

2. Live more simply.  This one I learned over the last year.  I had to cut out everything I could.  I wanted to go on the annual ski trip with all my friends but I knew I couldn't.  I was in LOVE with my DVR but eventually I had to give that up too.  I didn't buy new clothes.  I was down to like 3 pairs of shoes.  I skipped dinners out and movie trips with my friends.  But, you know what?  It's not so bad.  Things you think you just HAVE to HAVE, you really don't.  I could probably afford DVR and cable now, but I don't need it.  I also did a big yard sale this Spring and it amazed me how much I WANTED to part with.  I want my closet to be less crazy!  I want to have less knick knacks to dust!  So before you buy something really think about how much you really need it and if you buy it and have buyer's remorse the next day or even THINK you won't use it as much as you thought, RETURN IT!

3. Enroll in one of those automatic savings plans at your bank.  I enrolled in my bank's automatic savings program a few years ago.  I takes a dollar out of my checking account and puts it into my savings account automatically every time I use my debit card- which is A LOT!  I never have cash!  It doesn't build up crazy amounts, but you can rack up a couple hundred in there over the course of 6-12 months and I can not tell you how many times that account has bailed me out when unexpected expenses pop up- like the AC repair I had to have this week!  In addition to that I would recommend getting as much as you can in to another savings account like a Money Market account.  If it wasn't for my Money Market account, I would have been screwed when I lost my job last year!

4. Set warning thresholds for your checking account.  I have a low and high threshold warning set for my checking account.  My low threshold is $500 and my high is $1500.  I set it for these amounts because I know if I hit that low threshold I am in danger of not being able to cover my mortgage payment if I don't watch my spending (factoring in the amount of my next paycheck) and if I hit the high threshold I know I should look at moving some of it to my money market account before I get the "I've got money" syndrome and blow it on something I don't need.  This is a system that took me a while to get right because of the way my bills come and when I get paid, so just play around with the threshold limits until you find what works for you.

5. Ignore the "Joneses".  It is so easy to get wrapped up in comparing what you have to what your friends have.  You want a big 3 bedroom house with a garage because that is what your best friend got.  You want a nice car because that is what you are surrounded by in the parking lot at Target.  You want the shoes everyone is wearing.  You want  the American Dream- a big house, or that killer apartment, with the 2 cars and maybe even a boat!  That's the way everyone lives in the movies right?  Ignore it.  It will drive you crazy and drive you into debt in a heartbeat.  Don't buy things you can't afford.  Don't think life is a race of who can get the most and best stuff the quickest.  It's not.  Figure out what you really need and then once you have those things covered start adding some splurges that make YOU happy.  Screw what everyone else's NOT a competition.  And trust me, I know this is easier said than done, but it is the one rule that can make your life and your dealings with money so much easier!

So what are some financial lessons you've learned in your 20s?

Disclaimer: This post is part of the 20SB Blog Carnival: Friends & Money, sponsored by Charles Schwab. Prizes may be awarded to selected posts. The information and opinions expressed in this post do not reflect the views or opinions of Charles Schwab. Details on the event, eligibility, and a complete list of participating bloggers can be found here


Pammy Ponders @ Reflectorville said...

i particuarly like point number 2. Ive had a great time in my 20's , but with the recession biting all around it im really wary about things, its a very recent thing with me, but im hoping it lasts, even if it means being careful for a few months and then having a big treat if you've managed to put stuff away. we arent dependent on anyone for finance, other that our work, and im really worried about that would happen if that went, after a scare with hubbies employer last year, so best to be prepared!

Shoshanah said...

I started paying my cell phone bill this past January, which was the last thing my parents were paying. Although technically I'm still on their AAA account. I guess there's a cost to that, but I rarely use it, so I'm saying it doesn't count!

As for my credit, I put almost all of my purchases on my credit card each month. But I pay it off every month. There's been a few high months (especially after the holidays) but enough lows so it balances out. But I earn cash back everytime I use it, which is the main reason why I do it.