I’m now 31. A vast majority of my 20’s was based on a YOLO (FYI- that’s a saying that was actually in at one point in my 20’s alright) based attitude for money, and unfortunately it took me a long time to figure out how to manage my cash correctly and use it at its full potential. In fact, I’m still learning- a good education never stops!
My first introduction to debt was when I began uni. Predatory banks pounced on first year students in the university quad, and before they knew it they were saddled with an overdraft and credit card, me included. I am still fearful of overdrafts- they are supposed to be a safety net (obviously) but when you are paying full Auckland City rent and spending the rest of your student loan (living costs recipient here, no allowance for me) on ramen and parking tickets, that safety net very quickly becomes the standard.
Eventually in my mid 20’s I decided to take out a personal loan to clear my overdraft. A smart move, had I not also added the balance of my credit card to it but also kept my card open. Entering the workforce in debt can very quickly destroy your will to live, and opportunity to save for the things you really want. In a world full of right here and now, saving even $50 a week seems to be a waste of time when you can just chuck it on plastic.
So yeah. My early 20’s were definitely a learning curve, but unfortunately for me, I find that the only way I learn is through trial and error. But enough of my dismal early to mid 20’s- What I am here for is to help make some suggestions to help ease the pain of tackling debt, and help you create a budget that you can actually stick to. Check out my tips below, and let me know if you’ve made any big changes to the way you handle your money lately. (Apparently its called being a responsible adult)
- Get a copy of your payslip and confirm your actual net pay.
A surprising amount of adults don’t know what their pay is at each pay day. You should know how much tax you’re paying, and how much of your student loan (if you have one) is being paid each cycle.
- Create a budget that is simple.
I started with creating a budget on sorted.org.nz and then simplified it, so I know how much money I will need in my account every week to cover all of my costs.
DON’T create a budget that is too restrictive, or you’ll find yourself dipping your hand into your savings too often, which in turn will give you a bit of a sense of failure. It’s better to save small amounts than put a chunk of cash into your savings account that you need to access to pay your bills.
- Follow the 50/30/20 Rule
When I was first planning my budget, I came across the 50/30/20 rule. The basic premise is that your “needs” each month shouldn’t total more than 50% of your take home pay, your wants should equal 30% (Wants can include items that aren’t urgent to pay or absolutely necessary as well) and your Savings/debt repayments should approximately 20% of your take home pay.
The only issue that I have found with sticking to this ratio is that Auckland housing is basically a cash vacuum that unfortunately is a necessary evil, so you may need some wriggle room when working with these ratios!
- Be smart when paying back debt
When planning to pay back debt, consider your situation first. Are you living paycheck to paycheck? If you are, you might want to consider setting aside a small amount in a savings account alongside your debt payments for emergencies. Technically you should be able to survive for a few weeks if you happen to lose your job or some such, but let’s be realistic and say $1000. That way if you have an emergency that requires immediate attention, you have the ability to address it without it hurting your budget plan too much. If your savings get cushy, transfer some of it to your debt payments, ensuring you still leave a buffer.
If you get a windfall, pay off debt first. There’s no point in having a large amount of cash sitting in a savings account if the interest earned is lower than the debt interest you are paying each month.
- Don’t spend more than you earn
A tricky one to manage when you have that little devil in your ear telling you that your life won’t be complete without that particular dress or pair of shoes. By all means, treat yourself every now and then, it will keep you sane. But don’t give in to that little voice every time- You will thank yourself in the long run! If there’s something pricy that you can’t stop thinking about then think about how satisfying it will be to save up for it instead of whacking it on credit (just throwing a bit of liberal hypocrisy in this last point- I’ve made this mistake plenty of times myself)
Sorry that was so boring. But trust me, in a world of swirling debt and credit files, you will be so proud of yourself to be financially healthy and secure. Don’t make the mistakes I had to learn from, its stressful and will age you prematurely, then the cycle will continue when you have to add botox and anti ageing creams onto your credit card too.