I landed my first professional job right out of college way back in 1992. I was earning $18,000 a year and somehow managed to pay rent for a small apartment just off of Lake Shore Drive in Chicago, have a car, and dine out (maybe a bit too often) with friends.
I didn’t feel the least bit deprived at the time. In fact, I felt like I was making enough to not only stay on top of my bills, but save, and enjoy life too. I think what kept everything in balance was a basic knowledge of how to manage money and meticulously avoiding the more common missteps that might have capsized my little income boat.
No doubt there are throngs of new grads out there looking for or landing their first “real” job and wondering how to make ends meet and still save in an economy that can best be described as challenging. Here are seven strategies that can help:
1. Know where your dollars go
The foundation of all successful saving strategies is knowing where your money goes. Whether you track spending the old-fashioned way by filing receipts in a shoe box or through Web-based tools like Mint.com, understanding your spending habits is key to making the changes necessary to better serve your future.
Ask yourself: “Are there categories where my spending seems unbalanced or out of control? What are my spending triggers? What changes do I need to make in order to budget more effectively?”
Start by tracking your spending monthly; then, as your awareness and discipline grow, review expenditures quarterly to make sure you’re on track.
2. Attack debt
As much as our budgets will allow, debt shouldn’t be allowed to linger. Student loan debt, consumer debt, long-term auto debt and the like should be attacked with the full force of your paycheck (that means hacking away at the principal by paying more than the minimum due each month).
Otherwise, the slow bleed of principal and interest will drain the surplus that’s so essential to building net worth.
As extreme as it may sound, consider doubling down on your debt repayments by taking a part-time consulting or weekend job in addition to your regular 9-to-5. Direct 100 percent of that income to debt repayment (in addition to whatever you can afford from your primary job).
Though it may be painful for a while, this aggressive strategy will pay your debt down much faster, free you from wealth-sapping interest, and leave you free to fund your future.
3. Understand what money really is
Money is an abstraction. At its root, it simply represents our time in the form of labor. But truly grasping this concept and letting it inform your spending habits has profound and potentially behavior-shifting results.
Instead of equating that new $225 leather coat with money or credit card debt, link its value to your time and labor. Is it worth 10 hours of work? How much additional time and labor will it take to pay the interest if you charge it?
4. Start small; be steady
One of the most common misconceptions about saving is that we need to go big or go home. But amazing things have been done by regular people earning modest incomes and saving small amounts.
Over time, success is built upon discipline, consistency, and the power of time. Start saving early, don’t get discouraged by humble balances, and look for opportunities to invest more and ways to make what you’ve already saved work harder.
5. Go for the goal
Few things are achieved without a clear objective. And like any other type of goal, financial goals give structure to our efforts, motivate us, and help us measure success.
As you begin to save, establish short-term and long-term goals. Do you want to own your first home by 30? What kind of down payment will you need to make that happen? Do you need to pay off debt first? How much will it take to knock out your student loans in 10 years?
Make your objectives specific, attainable, and flexible enough to adapt as your income grows and your needs change.
6. Stash the cash
Funneling what you save into a separate account is sound strategy. It helps avoid the temptation to spend. Track interest and seize new investment opportunities, and monitor growth over time.
As enticing as it may be to deplete your blossoming savings account for short-term wants, keep this money off-limits and let it fund your long-range financial goals.
7. Watch your overhead
Finishing college, ending years of ramen-fueled deprivation, landing that first job, and setting up house can be a heady time of life. And amid that newfound freedom and regular paycheck, new grads can be tempted to overspend.
Once you secure that first job, don’t try to make up for lost time as a consumer. Avoid entering into long-term contracts, spending on big-ticket items, or adding unnecessary expenses to your permanent overhead. It takes time to adjust to a new income and understand exactly how far it will — or won’t — go.
If you’re a new grad or even a not-so-new grad, a few simple strategies can go a long way toward building security in uncertain financial times. Though it isn’t sexy or particularly headline-grabbing, the difference between financial success and failure in the long term isn’t necessarily how much money we make, but what we do with it, how we leverage it to increase our wealth, and how disciplined we are along the way.
What saving strategies have you passed along to the young adults in your life? What advice has helped you the most? Share your comments below or on our Facebook page.