Budgeting is not something taught to most people in school and why not?! This is a critical life skill to develop, as early as possible, so you have a better grip on your life.
The better you can budget, the more money you can save and use for amazing life experiences! Having fun with friends like going to concerts, shows, festivals, vacations that involve travel, owning a car and eventually a home are all part of your life journey. And getting your finances in order, with a high credit score, is critical to live your best life.
STEP 1 - KNOW YOUR EXPENSES
Tracking your expense in a spread sheet will actually show you exactly how much YOU COST PER MONTH. I love this spread sheet to track expenses on. It has a ton of built in totals (calculations) and makes your life easier to understand. All you have to do is plug in your costs. Here’s a simple step by step approach to breaking down your costs.
1. Know your Total “Utility” Costs per Month
Understanding how much it actually costs you to live is important. First, you need to understand your “must have” Utility costs. By utility, I mean bills that are essential to your life that you can’t live without. Some people have more costs than others, depending upon your living situation. If you live with family or have roommates, this could be much lower than living on your own. But no matter what your situation, you still need to wrap your head around what YOUR cost of living actually is. In an excel spread sheet, create a list to quantify that number. Examples of “utility” essential costs are as follows:
Rent/Mortgage
Electricity
Water Bill (most apartments don’t charge water)
Trash/Sewage (most apartments don’t charge Trash fees)
Internet
Phone Bill
Auto Loan Payment
Auto Insurance
Monthly Gasoline or Public Transit Costs (train/bus/ferry)
Average Grocery costs
Prescription costs (if applicable)
Pet Food/Supplies (if applicable)
2. Know your Total Subscription Costs per Month
Subscriptions are those extras in life that you don’t actually need, but are nice to have and may be a strong part of your lifestyle. Add all these to your spread under your “utilities”. Examples:
Restaurant/Eating Out Costs
Movie streaming platforms (Netflix, Hulu, Roku, etc.)
Music Streaming platforms (Spotify, Apple Music, etc.)
Gym Memberships
Xbox Live/Gaming platform costs
Hobbies (Art Supplies, Skate park memberships, billiards, Drones, etc….What are you into?)
Amazon Prime
Dollar Shave Club
Software Subscription Costs
App Subscriptions (on your smart phone)
Hair Cuts
Clothes Try to capture EVERYTHING that you might consistently spend money on monthly.
STEP 2 - EVALUATE AND CREATE A BUDGET
After you see how much YOU COST per month, you need to set a MAX of how much you’re willing to spend in certain areas per month. If not checked, your spending can spiral out of control and you’ll be oblivious of just how bad your blowing money in certain areas. Some people are totally oblivious of their spendings, so don’t be that naive and take control of your finances!
The top 3 areas you can usually reduce costs in are:
Personal Hobbies
Eating out
Subscriptions (not used very often) Take a look at your spending and see where you need to “trim the fat”. Make a conscious decision to reduce your spending and start saving!
Eating out. Instead of spending $700+/mo on restaurants, take out and drive thru, try to only spend $250/mo (save $450/mo, $5,400/year!!). Grocery shop to meal prep, make huge dinners with left overs and only eat out once or twice a week as a treat with family and friends. If you “can’t cook”, learn how. Ask your parents for your favorite recipes or watch YouTube videos. You might be shocked at how easy and cheap it is to cook for yourself, not to mention way healthier.
Hobbies. Instead of spending $400/mo at the bar (on drinks) or your comic collection, commit to only spending $200/mo (save $200/mo, $2400/year). Chose to go out less, spend less money when you do go out, and try using your bank or an app to track your spending.
Subscriptions. If you can eliminate things you don’t use often, do it! If you have Netflix, Hulu, HBO, Disney Plus, Apple TV, and 90% of the time you’re only watching 1 or 2 platforms, ditch the other subscriptions and save money! There are lots of apps now that can help identify and cancel subscriptions (all in one place). Some apps claim the average savings is $150-250/mo, $1800+/year. That’s a down payment on a car or a computer. You can also just go through your bank statement, for free, to figure this out.
STEP 3 - START SAVING & INVESTING MONEY
Once you’ve decided where to reduce spending, start saving your money. Work SMARTER, not HARDER. Take advantage of technology and try to automate everything you can to make your life simple and consistent.
Setup an Auto Transfer from checking to savings every month on your pay day for a reasonable amount. If you get a raise at work, or feel like you can save even more, you can increase this number each year.
Setup an Auto Transfer from Checking into an investment account every month. Investing in stocks, bonds, mutual funds and crypto are important to your future. You need to diversify how you make money. Only having 1 stream of income (your job) is risky. Yes, 401K funds through work are great too, but you should be investing outside of your job. Hire a financial planner if you’re unsure of where to start or what to invest in. They are worth the money (that’s their job 40 hours a week and will know a lot more than you or your friends).
STEP 4 - GROW YOUR CREDIT
I took a Rich Dad investment course years ago and learned more in one weekend about finances and leveraging debt than I had ever been taught, by anyone, in my entire life. It felt like someone opened my head and poured in the maximum amount of info that would fit. I was literally exploding when I left the room on Sunday night. It was empowering and motivating to make serious changes in my current financial situation. But it was also frustrating to know that me (and the vast majority of society) have been totally left out of this kind of info. I’d like to share some of the credit building tips and tricks I learned in that course to help you improve your score and financial situation.
Get a copy of your credit report - You need this to see EVERY single thing reported
Write the credit bureaus or hire a company to get old and inaccurate things REMOVED. I hired https://www.lexingtonlaw.com to improve my credit in my mid 20’s and my score went up 100 points in 1 year. Yes, hiring a company with attorneys can make this letter writing process go much faster than trying to do this yourself (for free). It’s worth the monthly cost if your’e score's in the 5 or 600’s.
Debt Consolidation - If you owe a lot of money on several different credit cards that have spiraled out of control, hire a debt consolidation company. They’ll call all your creditors, get the total amount owed lowered, and create 1 new monthly payment that’s affordable. This will help you get your debt back on track and under control. This was another thing I did in my early 20's to get me back on track, and I'm so thankful I did!
Get Credit Cards that build credit. There are a number of special credit cards dedicated to helping improve credit scores, just google search “credit building credit cards”. By getting 1 or 2 of these, it can make a huge bump in your score after a year.
NEVER EVER buy things on your credit card you don’t NEED and wouldn’t buy with your debit card. If it’s an “extra”, don’t bother with the purchase.
Never owe more than 30% of a credit cards total credit limit. For example, if your card has a $1000 limit, never owe more than $300 at the end of each month. Apparently, there’s a little industry secret that most lenders will start reporting you to the credit bureaus (for total amount owed) once you go above 30%, and this will cause your credit score to go down slightly (because of your balance amount). I've never fact checked this, but that class was so knowledgable that I'm taking their word for it.
Try and pay off the entire balance in full, every month. Set up auto pay for the entire balance. If you’re only buying essentials, then it’s within your budget and should not be a problem to pay in full. Also, this will avoid paying interest if you pay on time or before your due date (by a few days).
Only use Credit Cards for required “utility” expenses…..For Example:
Credit Card 1 - Only Pay Rent
Credit Card 2 - Only use for Auto expenses (auto loan payment, auto insurance & gas only). Get a sharpie and write GAS on it and NEVER use it for anything else
Credit Card 3 - Only use for Groceries
Call credit card companies every 6 months and ask for a credit limit increase. Some companies will not automatically increase your limit. But if you’re paying on time, and especially if you pay in full each month, they’ll likely approve it or give you a timeframe of when it’ll happen. Each time you’re limit increases, your credit score will go up (if not right away, shortly there after). Mark your calendar for a reminder every 6 months and make a quick 15 min call to customer service when they pop up. The worst that will happen is they say no, but it’s worth asking for.
Why does good credit matter? Land Lords use credit scores to determine who they want to rent to, so you can live in a nice neighborhood. Some companies and industries require good credit scores for hiring you. Good Credit will determine if you can get personal loans, cars loans and home loans. The higher the credit score, the lower the interest rate (and the lower amount of money you will pay total). A few established lines of credit with on time payments each month, and your credit will continue to grow upwards on its own.
If you take action to master your budget and grow your credit, you’ll quickly open up more opportunities for yourself. Best of luck to you in your journey of taking control over your finances and credit!
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