Financial Guide for the Newly-Employed
So I’ve spent the past two months trying to learn as much financial management as possible. Sadly, we don’t get taught the essential skills at school and most people, like me, figure it out when the moment arrives but many others do not. And then they fail miserably.
A small disclaimer: I’m not a financial advisor. The following are my findings and analysis and using these, I will be organising my financial plan. The most important thing is to always have a plan. Once you’re done reading, make up your plan.
Build A System
You need to have a financial system. It is an absolute must. You can use any app of your choice or just use Google Sheets like I do. I suggest both. You need to track your expenses and take advantage of every penny. You should have an app on your phone to quickly jot down your expenditure on the go and then on the weekends, you can consolidate all that data in one place, which will be your spreadsheet.
50–30–20 Rule
You need to learn how to plan your monthly expenses even before your income arrives. That’s where these rules come into handy at a macro level. The 50–30–20 division on your income will map to the following three areas respectively: Needs, Savings, and Wants. So 50% of your income can go to your necessary expenses like utilities, rent or groceries. You will save 30% of your income and the final 20% can be used to do whatever you like. This is your pocket money, spend it freely.
Inventory Automation
This might be the hardest thing you could do. Create an inventory of every single item that you own. This will help you get some perspective on the things you actually need and the things you want. And throw out everything you don’t need. Now, after you’ve got your inventory, buy new things slowly and steadily. And always put an expiry date on your purchases to know when you’ll need another pair of jeans, for example. A small tip on saving would always have a unique inventory, if you already have a blue shirt, don’t buy another blue one.
Learn How to Buy
Your inventory will be very useful when you want to buy something. Using that we will focus more on wants because we all have a choice there. First, give yourself pocket money to spend, just like you got from your parents. And never spend a penny more. Secondly. NEVER buy on impulse. The best way to beat impulse is to give it a month, if you still need it, get it. Never buy anything just because it is trendy or because it will make you look “high-status”.
Lifestyle Inflation
Lifestyle Inflation is a simple phenomenon that states that your lifestyle spendings go up once your income increases. This could become a habit that will always have you living from paycheck to paycheck. Try to settle at a minimal level of lifestyle where you can be happy and stop there. There’s nothing wrong with improving your lifestyle but do it sustainably. You don’t need to eat at high-end restaurants and you don’t need that premium leather jacket. Stop fooling yourself!
Stepping
To tackle the problem of lifestyle inflation I’d suggest a method called Stepping. Stepping is that you should always step into a better position than you were previously at but only when it is financially viable. So maybe don’t spend 30,000 on shoes. Start by 5,000 and move upwards only when the previous shoes have worn out. Similarly, you do not need that insanely expensive watch right now. Any watch works for your right now. Maybe level up gradually (or just check the time on the phone). Never buy things to impress others, and don’t let them determine your self-worth.
Savings and Rainy Days
Your savings start after you’ve accumulated your emergency fund. Your emergency fund is for rainy days and it is untouchable. Some people save up three months' worth of expenses while others go for six months' worth of expenses. Once you’re done with that, your actual savings begin. And once your income starts to increase, try to mould your plans until at one point, you can save more than you spend.
It’s also important to know that you should never derive happiness from material possessions. You should not be greedy. A good habit can be charity; it will do wonders for you. Try to incorporate this in your life and donate something, even if it’s small and insignificant. Changing the world for the better is everybody’s responsibility. I’m still educating myself on my finances but I hope this can give you starting point on how to plan your finances. Happy spending!
