The Beginner’s Guide to Personal Finance for Millennials
Personal Finance 101 by Kirin Nguyen. The first step to getting your finances on track and bringing you one step closer to Financial Independence is by tracking your income/expenses and sticking to a budget.
Why am I making this blog post? I was never taught anything about personal finance; how to save, invest, or manage money, and I want to be able to pass on the knowledge I’ve gained.
I went through school, worked a 9-5 job, and spent $20,000+ on a useless college degree because I was raised to believe that school was the only way to success. If you’re a millennial, then chances are you were raised the same way.
Hopefully, with this blog post, I can lay out the first step that will be the foundation to help you get your personal finances on track towards financial freedom. It won’t be a quick fix or a shortcut to life, but if money is a concern to you then this will benefit you!
If you have any questions, please leave me a message down in the comment section below or send me a message here! This blog post will not cover everything because personal finance is such a wide topic. If you want to learn more about other little tricks and tips then be sure to check out my other blog posts!
DISCLAIMER: I am not a financial advisor. The information that I’ve given on this blog post is from my experience. We have our own unique lives, so what worked for me might not work for you. Please do your proper research before attempting to do anything crazy like investing $50,000 in the stock market!
Tracking Your Income and Expenses
Tweaking Your Mindset When It Comes To Personal Finance
The first step to getting your personal finances on track is to actually track every single dollar that goes in and out of your pocket. You need to know the inside and out of your financial conditions and behaviors.
Just like how when you want to lose weight, you need to track every single calorie that goes into your body. Why? Because in order for you to lose weight, you need to consume fewer calories than your body needs.
We know eating healthy and exercising is good for us, but why doesn’t everyone do it? It’s because we don’t want to put in the work. Eating healthy, exercising, and counting our calories are such dreadful tasks. When things get tough or become stressful, we ultimately resort to the option that makes us feel safe. That is our “fight or flight” instinct.
And what do most people do? Flight.
These actions require discipline, and although they will be agonizing and painful at first, the discomfort will eventually subside.
So before I lose my train of thought, why am I telling you this?
Because, if you want to turn your finances around and get on the right track then you need to change that mindset of yours. It’s Go-Time; it’s either you commit to it 100% or not at all. The road to financial independence is not an overnight journey and unless you’re willing to commit to these little annoying tasks, you won’t get far.
“The Slight Edge” by Jeff Olson
Little things that seem insignificant in the doing, yet when compounded over time yield very big results.
“The Slight Edge” by Jeff Olson
“Successful people do what unsuccessful people are not willing to do.”
Tracking your income and expenses to get your personal finance on track
Tracking your income and expenses will allow you to
- Figure out how much income you are actually bringing home
- Keep track of all the expenses occurring
- Plan a perfect budget
- Determine whether your income or expense is the problem (maybe even both)
- Forecast how much your emergency fund should be
- Calculate how much you will need each month to meet end’s meet
- See how much money you will have left over
Your monthly expenses will not always be the same every month, which is why I recommend you to track your income and expenses for a few months.
Yes, this step is very “mendokusai“, but it is necessary before taking on the other steps. Turning your personal finance around is a long term commitment.
You can subscribe to my blog page here to receive a FREE budgeting template to make it easier for you.
Creating and sticking to a Budget
After a few months of tracking your income and expenses, you now have an idea of where your money is going. Now, this is where you need to make a budget.
Budgeting is very important when it comes to our personal finances; allocating our income into different sections of our expenses will help us better manage our money base on our lifestyle.
It will allow us to pinpoint which expenses are inflated and which expenses need more attention. Try using the 50/30/20 Rule of Budgeting if you’re just starting out. If you’re looking to create your own budget then try using my 5 Kickass Budgeting Tips!
The 50/30/20 Budgeting Rule Explained
The 50/30/20 Rule is a budgeting method that is great for anyone who needs a guideline on how to properly budget their after-tax income.
The budgeting percentages are 50% for necessities, 30% for wants, and 20% for savings.
Everyone lives a different lifestyle compared to everyone else so no one is going to have exactly the same expenses and interests. Adjust these percentages accordingly to fit your lifestyle and living conditions. The 50/30/20 is just a rough guideline to help you start budgeting your money.
One of the common issues when it comes to the 50/30/20 budgeting method is that a lot of people confuse the definition of a want and a need!
Don’t cheat yourself and say that you “need” these pair of shoes when in fact, you just “want” it.
What is The Issue? Income or Expense?
After a month or two of keeping track of your money and sticking to a budget, you should be able to see what the culprit is when it comes to your personal finance.
You’ve allocated percentages of your after-tax income to your necessities, wants, and savings, but are you successfully allocating enough to each category?
Your budgeted expenses will not always be 100% spot on, but it should still be around the same ball park. If you devoted 50% for necessities, 30% for wants, and 20% for savings and you’re not able to meet it, then what is the problem?
Are you not making enough money? Or are you spending too much? and if you are spending too much then WHAT are you spending too much on?
I am not making enough income
How much income an individual or family makes is a big factor when it comes to someone’s financial status. Where you live, who you live with and take care of can greatly contribute to how much you need to live.
Unfortunately, if you’re living in an expensive city like Vancouver or Toronto then you’re definitely going to need sufficient income. Assuming you’re not willing to lower your expenses or downsize your lifestyle then you will need to find other means of making more money.
There are many different ways to make more money.
- Work a second job
- Find a higher paying job
- Request a performance review and a raise
- Learn to invest (real estate, stock market, etc.)
- Start a side-hustle
- Earn interest income
- Rent out a vacant room you don’t use
- Start a blog
- Invest your time to develop a business
Check out 44 ways to make more money!
My Expenses are too high!
Yes, how much income you make is a big factor when it comes to your personal finances, but how much you spend can also play a big part! Someone who is making $100,000, but spends $100,000 is not better off than someone who’s making $40,000, but saving half of their income.
The perfect balance to achieve financial success the quickest way is to have your income increase while having your expenses decrease. That’s the perfect world we want to live in.
But let’s say you’ve just got hired at an accounting firm and it’s too soon to be asking for a raise and you have other obligations that are preventing you from working for extra income. How do you lower your expenses?
This step should make it a little easier if you’ve been tracking your expenses. Take a look at your spreadsheet, notebook, or whatever you used to keep track of your expenses and see what can you live without. Or you know what? Baby steps. What can you slowly decrease?
Take a look at the “wants” category instead of your necessities and savings; you still need a roof above your head and you need to save for an emergency fund.
Thorougly look at your expenses that is causing your wallet to hurt and see what can you slowly eliminate out of your budget? You can check out my blog posts on some of the culprits that caused me to lose quite a bit!
- 7 Things I stopped buying to save a lot of money
- 20 EASY TIPS to save more money
- Are you a student? Save money with these tips!
Key Things To Note:
- Your income and expenses may not always be the same every month. Don’t be surprised if your forecasted budget does not align with your expectations. Learn how to adjust and reposition your numbers. If one thing doesn’t go right then what’s the next move? How do you recover?
- The 50/30/20 budget is just a common budgeting method. It may or may not work for your current condition. Consider tweaking the numbers to your lifestyle until you find the right match.
- Someone who is heavily in debt may want to sacrifice their wants in order to free up more funds to pay off their debt
- A student may want to downsize their wants and their necessities in order to save or pay off debt.
- buy used textbooks
- using student discounts
- utilize student transit pass instead of driving
- Someone living with their family may not have as much necessity expenses (i.e. rent, utility, food) as compared to someone who is living alone. This will free up more money to fund their savings.
- Understand your lifestyle and living conditions. If you really want to be agressive with your personal finance then you can reduce your wants in order to increase your needs. I only devote 10% to my wants, the neccessary %’s goes to my neccessities and the rest goes into savings. Do you need to do that? Of course not. I do it because I don’t mind living frugal. You need balance in your life where you can still live your life without having to pinch every single penny.
- What happens if you get a raise at work? Awesome! Congrats! It’s okay to splurge a little as a celebration, but use this raise as an opportunity to be used to quickly fund your savings or pay off debt quicker. Try not to inflate your lifestyle (increase your wants)!
The first step to financial freedom is to know everything about your financial situation; that means anything that goes in and out of your pocket.
You’re not going to diagnose a problem before you even know what the problem is.
Imagine someone putting a cast on their arm when the problem is actually their leg. *wait.. what?*
Don’t forget to sign up on my blog page to receive a free budgeting template to help keep track of your finances. Also stick around for more personal finance related blog posts!
I hope you found this blog post helpful and let me know what you think down below!