Basic Finances for The Young Man

Basic Finances for The Young Man

This guide is targeted for "The Young Man". College students, rebels who moved out when they turned 18; maybe some big shot programmer with too much money. Who knows?

I am not going to go into great depth about the entire world about finances, like the stock market, savings accounts/plans, etc. The biggest reason implying that most people in this situation are not stable enough to proceed deeper into investing and other types of finances.

I am by no means some super-rich 19-year old who made his jackpot off trading stocks. But, I am well off for my age. I have my own car, a decent savings account, and I earn enough money to live a comfortable lifestyle whilst still saving money every month. I have seen it with my own eyes: the young paycheck warriors and the mathematicians. Doing such things can be detrimental to your finances for years, which will result in the old-you paying for the mistakes young-you made.

Your current financial situation

Before we begin, it is important to understand the current financial situation you are in. More often than not, this is dependant on your life situation. Are you a college kid living with your parents? Are you the rebel who moved out with only a minimum wage job? Here are some simple questions to ask yourself:

• Do you pay for your own home? Or do your parents pay?

• Do you buy your own food? Or do your parents pay?

• Do you buy your own clothes? Or do your parents pay?

If your parents buy 2/3 of the above, you are in a fortunate situation - appreciate that. If not; congrats on being a man - I guess.

Note: the only reason why I added the "if your parents pay" part is because often we have some people here that have parents pay for their dorm at a boarding college, etc.

Income

Great, now that we've established how much responsibility you have - it's time to figure out how to deal with it. If you answered 2/3 for the above question, then it is possible to be in a stable situation with less income than a person in the latter situation.

What type of job do you have? Is it full-time or part-time? How much money do you gross/net?

It is important to understand your source of income and why it's such. Having a part-time job as a Burger Flipper at McDonald's ™ when in college is more reasonable than being a college dropout with the same. Sorry kiddo, but this is still life and you need to earn a living somehow.

Full-time versus part-time jobs is an important factor to consider because you are looking at fixed versus variable income on a monthly scale. I get paid the same amount to the penny every two weeks; therefore it is easier for me to plan a budget around my income as opposed to someone who's working part-time.

It is important to know how much you gross, but what you are really working with is how much you net. Gross is how much money you earn before taxes and deductibles (Pension/Insurance/Healthcare Plan, etc). Net refers to what you take in after taxes/deductibles: cold, hard, spending cash.

If you have a full-time job, write down how much you make per month. If you have a part-time job, write down how much you make in a month based on current, repetitive working patterns.

Expenses

Now it's time to work out how much money you spend in a month. You can find a lot of budgeting forms and worksheets on the internet to better understand the scope of the things you buy.

Start off by writing down monthly expenses that are static. Things like your rent, cell phone bill, electricity bill, etc.

When it comes to other variable expenses, like gas, food, etc - I recommend using the app Spendee. It's a free app that does exactly what you want it to. You just put in that you spent 5$ in food, 20$ on gas, or 15$ on condoms and poof - it gets organized and charted up. No linking your bank account necessary. Take a month and log all your expenses, and I mean everything - whether it be cash, credit, or debit.

When it comes to tracking your variable expenses, be wary and critical about how much you really should to allow in your budget. For example, when I first made a budget I allocated myself 400$ in Gas Money because I often travel home a lot on the weekends. But, in reality, I spent maybe about half that so far. But, for alcohol (huehue), I blew more than my allocated money in one night.

So, save this post and set a reminder on your phone to come back one month from now. Hopefully, you've spent less than you've earned.

Budgeting

Welcome back! Hopefully, after that one month of very hard logging all your purchases, you've made it out alive and you understand how much money you really spend. Now, you can plan on how to cut down on unnecessary expenses, and start saving money.

First of all, I am a big fan of having a hard budget and a soft budget. The "hard" budget is something I will follow thru with no matter what, and it's based on a realistic month of spending. The "soft" budget is a budget that's a bit more loosey-goosey. It would be great if I could save that money, so I'm gonna try where possible.

Necessities are priorities, first and fucking foremost. All that money that you spent on booze or smokes isn't necessary. And, if you are one of those people who is throwing money towards unnecessary things and can't pay off your priorities, then get rid of that too. Because guess what? Sometimes you are going to miss out on fun shit, but you wouldn't survive if you did spend that money.

Necessities are anything of the following: a place to live, food, clothes, utility bills, cell phone bill, your transportation to make your income, etc.

If you can survive without it, then it's not a necessity.

The second most important thing is debt. If you are in debt, it is important to pay it off as quickly as possible. That shit will keep on following you until it is gone, and you're probably paying ridiculous interest rates on it anyways. There goes more money wasted. Try talking to some professional on creating a decent debt payment plan that will not completely impact your way of life.

Saving money

Ideally, you would try to save between 20% and 30% of your income. I like having a soft budget and a hard budget, so I will always base my savings plan on the hard budget. Currently, I am at around 350$ a month and planning to bump that up 500$ next month - which is about 25% of my net income.

But it's more than just not spending money. See where you can cut down on other expenses. Maybe eat out at a different restaurant, or make your own coffee at home instead of buying a 5$ Orange-Pumpkin Mocha Latte from Starbucks. I actually started saving about 40$ more a month (and lost some weight) by not buying a Medium Double-Double from McDonald's every morning.

Fun Stuff

I'm talking about the fun stuff. Alcohol, cigarettes, vacations and all very expensive steak at the Keg. Be very strict with the fun stuff. Do not let things slide, because it can happen very quickly. I went from spending 60$ to 250$ on alcohol in one night because I couldn't control myself. Luckily, I had that sort of back-fall... but that was all money wasted in the end.

Credit Cards

Holy fuck. This is something that I can not stress enough. I have seen way too many people put shit on credit cards thinking that they can get away with it, only to have their credit and sometimes live destroyed.

A credit card is a substitute for cash. Not for the money you don't have, or don't have yet. It's a plastic version of a dollar bill.

Credit Card Debt is dangerous. I was behind on one payment... by a day because it was some statutory holiday I forgot about. And you know what happened when I opened up a new credit card? Instead of getting a $10 000 Line of Credit, I got $7000 instead. My Credit Score took a hit, but everything is fine and dandy anyways. I went from a $1500 Line of Credit to $7000 in a year. Why? Because...

• I paid my bill on time, in full, every month
• I didn't do any cash advances
• I did my best to make sure I did not spend more money on the card than I could afford

If you are going to use a Credit Card, as long as you can follow these 3 rules... you are golden!

1 - Pay your balance off, each month/on time, in full. 2 - Do not do cash advances on your credit card. Interest starts from the day of the advance as opposed to when your bill is due 3 - Do not spend more than you can afford

TL;DR

Step 1 - Find out how much money you make a month Step 2 - Find out how much money you really need to spend a month Step 3 - ??? Step 4 - Profit

** SOME USEFUL RESOURCES **

The Budgeting Sheet I use (See end of Step 3)

Spendee App - to track expenses

Manulife Budget Calculator - A Simple Budgeting App I use

CONCLUSION

I hope some of you young guys learned something today. I get it - it's dirt simple. But you can not imagine the number of people that fuck up dirt simple every single day. So, consider yourselves lucky that you get it right the first time.