Money management tends to be a subject that no one wants to talk about, but everyone wants to know more about. I want to share some quick techniques that I use in my everyday life.
I believe that every dollar should have a purpose. This comes from the necessity of having a budget. As an organization, each chapter has a budget that shows where every single dollar goes to because it would be unwise to allow officers to spend member dues without showing the chapter where this money is going. So why do we not prioritize showing where every dollar that we make goes?
Creating a budget can seem very daunting, but there are so many great tools on the internet to make budgeting painless. Personally, I use a budget template that I found on Google Sheets. It automatically saves on my Google Drive, so that I can consistently update it when I am spending money.
Before I get into the specifics of money management, I believe it is important to not only spend the money you make but also to begin saving and donating. I live off a percentage breakdown of spending 60 percent, saving 30 percent and giving 10 percent. It may be easy to say, “Hey, I don’t think that I could possibly save that much or give that much!” That is okay! Sometimes, life gets in the way and you have to pay for medical bills or a car repair or student loans. The idea is that you start to think about living on percentages because that will set you up for success in the future. If you consistently spend, save, and give the same percentage your whole life then even when you change jobs and make a different salary you will be prepared to adjust your budget as necessary.
Living off of 60 percent of your salary is not always feasible depending on the season of life that you are in. Regarding housing, It is always wise to only use 30 percent of your total monthly income for rent and utilities. For example, if you make $3,000 a month, then your rent and utilities should add up to be around $900. If we continue with this example of making $3,000 a month, this would mean that you still have $900 to spend that month.
Before we begin talking about saving 30 percent of your monthly income for a long-term goal, it is important to first work towards having an emergency fund. Personally, I believe you should have at least $1,000 in an emergency fund because we never know when we will have to have work done on our car or when our laptop is going to break. It is essential to always be prepared for the worst because, if you don’t have an emergency fund or savings account, we revert to building credit card debt when tragedy hits.
One tip I would suggest is using direct deposit if it is offered by your employer and using the auto transfer feature if it is offered by your bank. By using direct deposit and automatically transferring 30 percent to your savings account and the rest to your checking, you never really see that extra 30 percent and might not be as tempted to spend it. This ensures that you actually begin to save well.
As Sigma Kappas, we value service and philanthropy and, as such, donating a percentage of our income is almost second nature to many of us. Ten percent may not be realistic for many, but even getting used to donating 1 to 10 percent is a great habit. As individuals, we have the ability to impact the community around us in so many ways, from helping those who are raising money for research to assiting friend in need.
Credit and Loans
So what about credit cards and investing? These two things may have some people running. For some, there is a stigma around credit cards suggesting that they are bad and should never be used. However, building credit is a necessity in order to get a better interest rates on car loans, mortgages, student loans, and more. The key to having a credit card is to make sure you are paying it off each month. The danger of credit cards is allowing your billing statement to grow and incur interest each month. Paying the minimum payment on a credit card is not recommended. Credit cards can also be a great tool for earning rewards or points. A lot of banks have a student credit card options, which teaches you how to properly use a credit card. Also, many banks have courses on how to be a wise spender with a credit card. I highly recommend looking into these courses. And as a rule of thumb, never charge more on your credit card then what you will be able to pay back at the end of the month.
If you are totally opposed to credit cards, another way to build your credit is by making timely payments on all of your bills. By paying off your utilities bills, car loans and student loans on time, you are able to slowly build your credit. Your credit follows you by staying attached to your social security number, so it is likely you are building credit without even realizing it. On the flip side of this, if you aren’t paying your bills on time, many companies or organizations will be forced to send your outstanding debt to a collection agency, which is very bad for your credit. Our vice presidents of finance at each chapter will send women to collections if they do not pay their dues and are financially expelled, so those dues that were charged to your account in college could potentially prevent you from getting a mortgage one day. Taking responsibility for what you owe is imperative.
Loans for things like cars and student debt are actually great for your credit because you are making consistent payments through a payment plan. Car loans and student loans are often referred to as “good credit” because it shows a company that you are responsible by paying on time.
Finally, investing. Investing is attainable, even when you’re in your 20s, and it is a necessity when you’re young. The earlier you begin, the more money you will make. Compound interest is the best kind of interest because it works in your favor. Similar to how many banks have classes on credit cards, they also have classes on mutual funds or retirement accounts. When you hear someone talking about a retirement account growing month to month, it is because of compound interest. Yes, you are putting money into the account each month, but you are also profiting. Mutual funds are a beautiful thing. By simply putting $100 a month into an account each month you will grow in wealth.
When I was a freshman in college, I learned about compound interest and investing at an informal chapter meeting. So I met with my local insurance agent (you can also do this through a bank) and created a mutual fund. My goal in college was to invest $50 a month, the equivalent of one 8-hour work shift on a Saturday. I made barely over minimum wage, so this came out to be about $50 after taxes. Now as a post-graduate, I have raised my investment to $100 a month and I already have a head start on my retirement account. It is never too early or too late to start investing.
I am not a financial advisor, but I am someone who benefitted from a financial advisor because they taught me how to invest in my future. I majored in psychology in college, so if I can understand finances then so can you. Personal growth is one of our core values in Sigma Kappa and, throughout college, we engage in programming to help us invest in our futures. So my challenge to you is this: while you are educating yourself throughout college and early post-graduate life, financially invest in your future, too.
I hope this information and tips help you get ahead of your finances and challenge you to begin budgeting and saving. While I don’t want to tell you how to manage your money, I do encourage you to become more educated on your finances and take charge.