I don’t know about you, but if you grew up like me, your family taught you nothing about how to keep money in your pocket, let alone build wealth.
You probably watched your mom spend her money on every shoe and dress she laid her eyes on, frequently saw your 14-year-old brother drop $140 on a pair of Jordans every chance he got, or heard your dad constantly complaining about how he didn’t have any money whenever you asked him for some.
Then came life after college. You watched your friends (who weren’t black) buy houses and cars, carry around the latest piece of tech, and take trips you couldn’t even dream about since you’re sitting on a pile of debt.
After watching this go on for about two years after I graduated college, I had an ‘aha moment.’ I realized I just couldn’t keep money in my hands, and it was frustrating to constantly watch my friends live comfortably and buy whatever they wanted, whenever they wanted.
“Why are they able to live this way?” I asked myself.
It was because their parents taught them how to make and keep money.
I was tired of being sad and broke, so I decided I was going to teach myself about money. The moment I made that promise to myself, a very interesting thing happened.
I was cleaning my room one day, and I came across a dusty magazine called “Young Money: Earn It. Invest It. Spend It.”
When I picked it up I remembered I had taken it from a stack of magazines at our student resource center in my sophomore year of college.
What I read from that 24-page magazine in one hour changed the course of my financial life forever.
Here’s everything I learned from that magazine, and a few more tidbits to help you get out of debt, make some money, and actually keep it. These are the reasons why you’re broke, so take note of them and fix them so you can become financially sound.
1) You haven’t assessed your debt.
If you’re a millennial, the most common types of debt you’ll have at this time of your life are student loans, credit card debt, and pesky little outstanding bills, like those doctor’s visits you still haven’t paid for.
First, let me address student loans, because this may be your largest source of debt.
According to research from The Institute for College Access & Success “Project on Student Debt” report, the average college graduate owes $28,400, and the unemployment rate has risen to 8.5 percent in the last eight years since 2007.
So you’re probably thinking, am I ever going to pay this off?
The answer is yes–it may take 20 years, but it can take less if you take steps to actively pay it off.
Always pay your loans on time and, if possible, pay earlier than the due date, and always pay a little extra than the owed amount. These moves will ensure that you’re on track to getting rid of your student loans, and can actually help lower the interest rates, too.
If you’re still jobless or not making enough money to cover your loans, the government also has income-based loan repayment programs you can look into.
Switching gears to credit card debt, if you’re reading this right now and you don’t have a credit card, I strongly suggest you don’t get one unless it’s absolutely necessary.
Essentially, a credit card allows you to spend money you don’t have. It may be instantly gratifying to be able to purchase anything you want, but you need to remember that this money is not yours, and that you’ll eventually have to pay it back.
If you choose to get a credit card, get one that’s capped at a certain amount, and offers you bills that you can afford to pay off monthly, as well as a low interest rate and no annual fees.
Bad credit is not a great thing to have, as it can impair your ability to buy a house, a car, or to rent a place, so make sure you have a good handle on this debt.
If you already have credit card debt, following the same steps I mentioned to get rid of your student loans can help you diminish your credit card debt in no time.
The icing on the cake when it comes to measuring your financial success is getting your credit report and knowing your credit score. You can get your annual credit report for free at www.annualcreditreport.com. This will help you see where you are in your financial journey, and you’ll begin to think about the steps you need to take to get your money right.
Lastly, those outstanding bills–all I can say is that you just need to pay those off. If you don’t take care of those payments, it can definitely have a negative effect on your credit.
In short, pay your bills and pay off your debt. When your debt is clear, you’ll be smiling at yourself because of all that extra money you have in your pocket.
2) You don’t have a budget.
After you’ve checked out your debt, now comes the time to put together a plan to pay it all off, and that plan starts with a budget.
Creating a budget is the most amazing thing you’ll ever do when you’re first getting started with your journey to financial success, because it puts into perspective how much money you actually have, and how much you have to put towards your wants and needs.
To find out what your budget will look like, you have to take into account fixed expenses like student loans, credit card bills, rent, car payments, and the like—these are expenses that will not change in cost from month to month.
Then, you’ll have to take into account variable expenses like food, getting your hair done, or movie dates.
To plainly see your finances, you’ll have to write down everything you make and everything you spend. Using a Microsoft Excel spreadsheet is the best way to do this, given its convenient built-in mathematical functions.
After you’ve written down all your fixed and variable expenses, subtract that number from how much money you actually bring home every month.
If you get a positive number, pat yourself on the back, because you’re living within your means. If you have a negative number, that means you’re living outside of your means, and you may need to cut back on some of your variable expenses.
Play around with the numbers until you get them right. You’ll have to keep tweaking your budget until you get the perfect amount to allocate to each category.
Make sure you’re creating a new budget on a semi-regular basis, since your expenses will likely change from month to month.
At any point in time, I know exactly how much cash I have available thanks to my budget, as well as a site called Mint, which compiles all of my financial information into one easily accessible location. I know when to spend, and when to cut back, and this ultimately helps me live within my means.
Also, while it’s important to be responsible with your finances, don’t forget to give yourself some ‘play’ money. Yes, you read that right. Play money is a small monetary reward you give yourself that allows you to spend that money on whatever makes you happy.
For me, it’s five dollars every week so I can buy some French fries or some ice cream. For you, it may be a movie or a new item of clothing every month. Whatever it is, don’t forget to include this in your budget, so sticking to it is not such a drag.
3) You don’t track your spending.
If you make $600 a month, why are you spending $1200 a month? What I just wrote may make no sense to you, but if you’re tracking your spending with services like Mint like you’re supposed to, you’ll start to understand where each and every cent of your money is going.
At one point in time, I was only making roughly $1,400 month, but I was spending $1,800 a month. I only noticed this when Mint pointed it out to me, and it scared me into changing my spending habits.
Stay tuned for Part 2 to continue reading about how you can become more financially responsible!
Featured Image Credit: https://flic.kr/p/9zUCyn