Franny graduated from college almost a year ago. She has a very good job, makes a regular income, has no large bills (no student loan debt, thank me very much), but she loves to spend and her credit card bills are growing. Franny has no budget and she doesn’t want my help, but I fear the repercussions of her actions and for her financial future. Help!
Franny, OMG, I hope you are reading this. I love that you are working and have not committed to large bills, yet. That is great news! Your best asset is your youth! If you start saving now, the money you can make can never be replicated due to the virtue of compounding interest.
Only you are responsible for your future. That is a hard lesson to learn when you are in your 20s, but if you can learn this lesson now, you will give yourself the gift of financial freedom today and in the future.
Make yourself a promise to start an automatic and specific savings plan of a percentage of your income with your very next paycheck. Set a goal and stick to it as if that saved money isn’t yours (this is different from an emergency savings account). Starting today, commit to only spend a portion of what you earn. If you have a credit card balance, which can spiral further out of control, get rid of it by initiating a spending fast until the debt is gone. No more spending money you haven’t even earned yet.
Being goal oriented about savings and investments achieves results. Ignoring the impulse to spend, by questioning whether you really need to make the purchase and will be happy with it when the bill comes, can keep your dollars growing for you, along with the opportunities those saved dollars will provide you in the long run. You and only you make money on the money you save. You can’t actually ever earn as much as you want to spend, so you must get a handle on the importance of saving and the life long impact it will have on you if you do it correctly from the start.
If you look closely at the amount of your take-home income and divide it into categories of basic needs and wants, you will see just how far your actual income can go. Thinking you know, without actually investing the time and effort into this exercise, is akin to financial suicide.
Set a budget for every pay period of the exact amount you will use for the “necessary” and the “fun” things in life. Budget for exceptions and emergencies as well. Be realistic about what the “fun” things include … lattes, trendy clothing, live performances and dinners out. You can accomplish this by allocating funds. When your pay comes in, take that budgeted amount out and label it “fun $.” Use only that money for “fun.” When the money runs out, so do you!
Do not resort to your credit card for things you can’t afford. If you don’t have the money today, and your salary is not going to increase next week, you will not have that money next week. Do not spend your future money. You can accomplish this by avoiding debt: (1) no credit card spending unless you have the money now and intend to fully pay the bill with that money, and (2) no installment loans.
Most people have no idea where their money is going until they commit to this kind of self control.
Make a record for yourself of your expenditures in a Money Calendar Journal. Just like people like to see their weight drop when they are dieting by recording their accomplishments (and blips), I suggest you record your money life. It is exhilarating to see your success and your habits in black and white. This analysis can be eye-opening and informative. Are you spending in line with your actual goals?
Using a Money Calendar Journal you can look at your personal big picture on just a few pages. Using the monthly calendar format, write in each daily box your spending for that day (or your will power when you said “no”). You can reflect on your money actions when making future spending decisions: “Wow, I haven’t purchased any [insert costly pleasure] in X months, I have been really respectful of my money and am proud of my self-discipline.”
On the inside cover of the calendar, I jot down the balance end number of my monthly savings and brokerage accounts. Just one total number and the date. Sometimes it does go down, but those rolling totals over the years are quite rewarding. Credit card statements with year-to-date interest amounts growing are, to the contrary, quite punishing.
To the extent you insist upon credit card usage, keep track of your purchase totals. It is too easy to buy on credit and wait until the statement comes to assess the damage. You must be continually aware of the amount of indebtedness you are committing to. Here, too, you can keep a log (on the back cover of your money calendar) to track the credit you are spending and avoid shock and regret when the statement arrives.
Dear Franny, there is so much good going on in your young life. Do not be misguided into believing that your money habits are unimportant or to be addressed tomorrow. You have come this far, do not drop the ball and become the average broke American who works a lifetime and has nothing to show for it. Today is the best day to start!
I’m a debt settlement and bankruptcy attorney who negotiates resolutions between clients and their creditors. I am also a real estate attorney involved in both sides of purchasing and selling distressed real property. I am passionate about teaching people about money and helping individuals of all ages achieve financial independence and success in a "no…
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