Erin Bui chats about helpful tips on keeping your debt in check (avoid consumer debt like the plague), having your emergency fund, learning about insurance and investments, and basic budgeting and saving habits we should adopt. Her goal is financial independence and she is right on track!
Financial independence and stability is my goal. I want to start managing my life without any help from family or friends. In order to do that, I need to learn financial basics and follow the steps to be financial secure. Sadly, this very important knowledge in life was not taught to us in high school or college.
As a college student, I have to pay for books, living expenses, and a bit for my social life, such as going out to eat. I tend to overspend, and I know this is one of the problems that causes me stress. Sometimes I wonder what would happen if I spend too much without thinking and when the bills come, I don’t have enough money to pay.
Therefore, I came up with a checklist of tips to live by and hope that it helps you become more financially independent and more knowledgeable in the budgeting and saving process.
Avoid consumer debt
- If you put all your expenses on your credit cards and accumulate debt, the high interest rates would only make the credit card company richer and make you poorer.
Know the basics of budgeting
- Establish financial goals
- Understand and accept if you have a spending problem.
- Find different solutions to stop certain bad habits.
- You will need to set goals and objectives for yourself to stay on track.
- Budgeting:
- Making sure you are spending less than you are making
- Remember to set long and short term goals.
- Budgeting makes it easier for people who want to save for retirement, emergencies, new car, or a house to achieve their goals.
- It will also help you relax and sleep better at night because you know where your money is going and there is a plan.
- Spending:
- Spend much less than you earn
- Ignore what other people are doing and focus on yourself
- We all have a desire to fit in with our families, friends and strangers, so sometime we spend money on unnecessary things or experiences. Instead of following a trend, allow yourself to be different and one of the kind.
- Focus on building your finances.
Have an emergency fund
- There are moments when something comes up, and you are in need of cash.
- The emergency fund can help in a life or death situation where you need money to survive.
- Knowing the emergency fund is there gives peace of mind.
Invest time in learning more about insurance and investments
- Getting the right insurance that suits your age and life situation will help you be financially secure in an unexpected situation.
- Ask yourself this: What would happen if you got in an accident or got sick?
- Many people have gone bankrupt when something unexpected happens. Don’t be like them.
Improve your credit score
- Open up credit cards but always pay on time
- Always pay at least minimum monthly payment on time every month and if you have extra money that month, you should make an extra payment or pay the full balance.
- Do not exceed your credit limit.
- Most importantly keep track of your spending.
Pay yourself first
- When you first get your pay, you should always have some money to save for a raining day, before you pay the bills, buy groceries, pay for rent, insurances, and so forth. This ensures you have savings.
- By putting away a small amount when you first get your paycheck, this will help you budget better because you will force yourself to live on a smaller budget.
- 401(k) is a tax advantaged employer sponsored account which is usually the best way to start, because it will deducted out of your paycheck automatically, go into a tax deferred savings account and sometimes, the employer matches what you put in.
- This is a great way to build wealth for your future.
Buy income-generating assets
- After saving for a while, you will eventually have the money to invest in assets that will help you produce another source of income, such as the stock market, real estate properties, art or collectibles.
Be flexible
- Know that you will not be saving every year or month of your life, but following your budgeting plan as faithfully as you can is important.
- Do not freak out when something bad happens. Hopefully you have insurance.
- Just be ready to adjust when a problem occurs.
Let me honest with you; I have a problem with spending because I love to eat at restaurants, mostly $10 ramen bowls. Now that I am in college though, I find it hard to spend as freely because there are many bills to keep up with.
My biggest tip for financial independence is to practice budgeting and saving habits. I know it is hard at the beginning, but this is why you have goals and objectives, so you can reward yourself when you save up to a certain amount of money.
- For example, I will weigh the pros and cons of going to a restaurant for a ramen bowl and the books I have to purchase for school. I chose the books, of course.
However, this does not mean that the other aspects in the checklist are not important. Avoiding consumer debt, having an emergency fund, being knowledgeable about insurance and investments, improving your credit score, having the habit of paying your self first, buying income-generating assets, and being flexible are crucial to reach financial independence.
For more reference, please watch this video on saving, investing, and speculating:
So now it’s your turn to soak up these financial basics and build up on basic budgeting and saving habits so that you can reach financial independence!
Erin Bui is the Mangus Finance Circles specialist based in Riverside, CA, focused on helping special needs and senior communities with financial education and awareness.