5 Financial Tips for Newly-Employed Young People
Summer. A time for barbeques, trips to the beach, ice cream and, for many teenagers and young adults, their first jobs. What better time, then, to educate the newly employed about sound financial practices, before they’re tempted to spend all of their hard earned income having a good time?
For many Americans, the pursuit of fun is more of a priority than saving money. Just turn on the radio and you’ll hear any number of songs about frivolous consumerism. In the case of one of this summer’s ubiquitous songs, Time of My Life, the rapper Pitbull (né Armando Christian Pérez) celebrates the disastrous practice of spending money he doesn’t have:
“I knew my rent was gon' be late about a week ago
I worked my [butt] off, but I still can't pay it though
But I just got just enough
To get up in this club
Have me a good time, before my time is up
Hey, let's get it now”
Here are five tips to share with the newly employed people in your life:
Save, Save, Save!
Saving can be as simple as setting aside a certain portion of your paycheck to go directly into a savings account each pay period, rather than in a checking account. If your employer offers direct deposit, select a specific amount or percentage of each paycheck to go directly into a savings account. If you don’t have direct deposit, you can commit to put 10 percent of each paycheck into a savings account. You can’t miss what you never saw in the first place.
Learn to Budget
If you don’t know how much money you have coming in and how much you have going out every month, it is difficult to plan. Assess how much you make each month. Then, figure out what fixed costs you have—rent, utilities, commuting expenses, gas, discretionary spending, and other one-time expenses like holidays, gifts and vacations. That will give you a better sense of what you can and can’t afford.
When I was a teenager, my friends and I started Baby-sitters Incorporated, a babysitting service. (Think the 1980’s book series The Baby-sitters Club.) Babysitters Incorporated’s (self-created) rules required us to put a certain percentage of each babysitting job into our organization’s savings account at a local bank. We also had a fleet of “associates” who we called on when we couldn’t work. They were required to pay us 10 percent of what they earned. By the time we decided we were too old to babysit, we had more than $1,200 in the bank (in 1995 money!).
For young adults:
While large purchases and expenses—a home or a car, or starting a family—may seem a long way off, preparing for the future now, financially speaking, can put you in a better position to make those large financial decisions. So what can you do? Forego cable television for a Netflix subscription, bring your lunch to work most days, skip Starbucks and drink the coffee offered at work or make it at home, buy a few quality items of clothing and avoid cheap, ill-made pieces. Also consider taking a second job, such as house or pet sitting. Got a hobby that you love? See if you can find a way to make money from it.
It’s simple--if you can’t afford something, don’t buy it. Instead, devise a plan to save up until you can afford to purchase the item without debt. Sometimes waiting can make you realize the item isn’t that important, or you might find a way to make this purchase fit into your budget. Another way to avoid debt is to learn the difference between your wants and needs.
Also, be mindful when signing up for a credit card that it should be used responsibly. While convenient, and at times, necessary, credit cards make it easy to overspend.
Ask for Help
Becoming fiscally responsible takes time and guidance. Don’t be afraid to ask for help! Friends and family may have different suggestions for how to save or invest your money, or handle college loans. Sometimes those that know you best can offer solutions that will best suit your needs.
If you provide young people with sound guidance on fiscal responsibility early in life, you are setting them up for a lifetime of financial stability and good decision making. And, hopefully, now and again they will be able to afford to have, as Pitbull says, the time of their lives.
Lauren J. Sternberg, Communications Manager, American Institute of CPAs.
Pitbull courtesy of Eva Rinaldi via Wikipedia.