By: Athena Manon
With the New Year comes resolutions; stop smoking, lose weight, do better in school, save more, etc. However, without the necessary tools each of these resolutions will never get accomplished. Tools are what enable us to do better and succeed. Without them we are walking blind trying to accomplish our goals. Unfortunately, schools these days do not emphasize the importance of personal finance tools. How many of us leave high school or college feeling like we know how to manage our money? That we can pay our bills effortlessly? Or believe if we just get a better paying job then we can pay our bills?
Unfortunately, having a better paying job doesn’t mean that you will be able to pay your bills. It just means you now make more money. There are many celebrities who make millions of dollars and still go broke. This is because they don’t utilize financial tools, which leads to overspending or can leave them vulnerable to unethical accountants.
So, what are the tools?
In a nutshell, it is a way of looking at your money so that you cannot overspend. I advise people to have two checking accounts and a savings account with their bank. One checking account is for your fixed bills like rent/mortgage, cell phone, car payment, car insurance, etc. The second checking account is for the variable bills that can be played with depending on the financial situation. These include food, gas, clothing, haircuts, entertainment, etc.
In addition, have a Roth IRA account with an investment company to begin saving for your retirement. We see all over the news, how many Americans are working longer because they can’t afford to retire.
There are four steps to making sure you can be better with your money:
- Turn all your bills that you pay monthly, quarterly, etc into the yearly amount. (For example if you rent is $450 a month then it will be $5,400/year)
- Divide the annualized bill by the number of paychecks you receive in a year (If you get paid weekly then that’s 52 paychecks in a year so the rent bill is $104 each paycheck that you will set aside from each paycheck $5,400/52 = $104 per paycheck)
- Add up the per paycheck amounts for your fixed bills. This is the amount you will need to put into your first checking account each paycheck you receive.
- The leftover money goes to your second checking account or you can keep it as cash to use for your variable bills. This amount is what you will have to spend on food, gas, clothing, gifts, entertainment, etc. until your next paycheck.
General tips include:
- Saving for retirement and emergencies should also be included in your fixed bills account.
- The savings for emergencies should always go in a savings account with the bank because if an emergency happens you need to be able to access the money quickly. Conversely, the savings for retirement should go into an investment account (with an investment company) so that you can invest in stocks, bonds, etc. These will give you a higher rate of return than a savings account but also incurs more risk. Talking with a certified financial planner will enable to you invest wisely.
- Your financial planner can show you how saving as little as $200 a month or $46 a week for thirty years will give you over $150,000.
- If you find that you are overspending get real with yourself and your situation. Make necessary changes in your bills to afford your life. Going into debt is not worth the stress for the momentary joy of buying that item.
- Having a second part-time job is a great way to keep you out of financial trouble and boost your income.
- Take advantage of the free money offered at your job. Many employers match your 401(k) contributions.
In conclusion, managing money doesn’t have to be difficult but it does require you pay attention. Also, staying true to you and your situation will alleviate the stress caused by trying to keep up with peers. Using the tools given will smooth the fluctuations of your finances allowing you to comfortably know how much you can spend each pay period. Applying this methodology early in life will enable future financial success and help ward off financial pitfalls many Americans find themselves in.