Let’s face it, life is stressful. From having to meet the constant demands from your boss to dealing with family obligations and making time to see friends, it’s easy to feel overwhelmed. Now, you may think that your finances are just another area of your life you have to constantly worry about but this isn’t true. If you put the following five methods into action then I promise you that managing your money will be the most stress-free part of your life!
Number 1: Set Up A Simple Budget
Being told to use a budget is kind of like being told to eat vegetables as a kid, you simply don’t want to do it. However, like eating vegetables, having a budget is a part of growing up and taking control of your financial life and fortunately, budgeting doesn’t have to be an arduous task if you do things right.
If you ask me, most people overthink what it takes to create and maintain a budget. They see people tracking their finances with complicated dashboards or 50 page spreadsheets and are immediately turned off by the idea of properly allocating their money. I get it! However, I’m here to tell you that creating and maintaining a proper budget is as easy as your cheating ex-girlfriend. If you don’t currently have a budget or want one that you can manage with just a few minutes a month then let me share with you what’s worked amazingly for me!
The 80/20 budget. This is the ultimate ease of use budget for those who cringe at this six-letter word. The 80/20 budget works in the following way. Each and every month, 80% of your income is allocated towards your spending while 20% is sent to savings. That’s it. It doesn’t get any simpler than that. There are no budget expense categories, no complicated percentages to deal with. Nothing. Just add up all the income you make in a month after tax and multiply it by 80% and that’s the money you’ll use to meet all of your routine bills like rent, groceries, insurance etc. Then, the other 20% will go towards saving.
Now, in the next step, I am going to share with you my foolproof way of ensuring you save money each and every month but one other step you must employ for this budget to be effective is tracking your spending. In the notes app on your phone, write down how much you spend every time you make a purchase or send out a payment. This will help you track whether you are remaining under your 80% spend limit. Remember, “if you ain’t tracking, you ain’t stacking” so the sooner you can get a proper budget in place and track accordingly, the sooner you will start to see the financial progression in life you aim to achieve.
Number 2: Automate Your Savings
It’s been said that Bill Gates always hires the laziest person to do a hard job and let me tell you I am his man. I’ll be the first to admit that I am rather lazy and because of this I like to make things as easy on myself as possible. One way I do this is by automating my savings. You see, most people make saving money some overly complex process. They think they have to either have some advanced spreadsheets or some new-age app to ensure that they are able to continuously save money but this isn’t true. I literally haven’t put an ounce of effort into saving money in years and it’s because I have a low-effort money management system that I’m teaching you right now. We already talked about using a stress-free budget and tracking very minimalistically on the notes app on your phone. The last step is to set up automated savings deductions through your pay.
Most people these days work some form of a 9–5 job. Whether they are paid on salary or by the hour, they are routinely collecting a paycheck every two weeks. Great, this means you are a prime candidate for the savings methods I am about to share. What you want to do is talk to your HR department or whoever processes your payroll and ask them to deduct 20% off your pay. Now, don’t worry they aren’t keeping that 20% for themselves, all they are going to do is re-route that money into a savings account so that it’s held for safekeeping.
You see, so many people squander their chances of actually saving money because once the cash hits their account, they find a million and one ways to spend it. However, when you have your savings sent to a particular account designated for wealth accumulation, you limit your interaction with this money and reduce the chances of squandering your savings efforts. Therefore, if you’re lazy like me or just want one less thing to worry about in your life then setting up automated savings deductions is definitely the way to go!
Number 3: Minimizing Educational Costs
College is a special time in a young person’s life. It’s a time where you meet new people, build your network and gain the knowledge and expertise needed to enjoy a very successful career. Now, in my case, meeting new people meant being a regular at the school bar, gaining knowledge meant skipping classes and reading the textbook at home and getting a job meant six months of constantly applying for a job 1000 other students wanted but you get my point — college is great!
Amidst all these highlights though is a by-product of the student life that the majority of young adults have to deal with which is student debt. As of 2021, over 43 million students in the United States have some amount of college debt with the average debt load being just under $40,000. That’s a lot of money to constantly have on your mind while entering one of the most stressful new chapters of your life when you transition from your college to your professional life. It’s for this reason that if you want to enjoy a more stress-free financial life then you need to adequately manage your educational spending.
If you’ve yet to attend college then the best thing you can do is minimize your fees and work to offset some of your costs. This means going to a local school versus going out of town and working a part-time job that complements your study schedule. Unless you have the highest paying student job in the world, chances are you will still have some student debt to tackle after college but it’s better to at least start chipping away at this debt before interest is applied and repayment becomes that much harder.
Now, if you are out of college and still dealing with student debt, the approach you’re going to take will be as follows. After ensuring all your high-interest debt like credit card debt and auto loans are taken care of, aim to pay down your student debt as quickly as possible. Given your job probably isn’t adding commas to your bank balance every month, you’re likely going to have to take on a second job or a side hustle to earn the extra income you need to become debt-free. I know this will likely add more stress on you in the short-term but in the long-term, ridding yourself of student debt will have been worth the effort.
Number 4: Use the 5X Rule
Ask the average person if they can afford something and as long as they have the room for it on their credit card, they are likely to say yes. Ask a savvy money manager and they will tell you that if they couldn’t buy 5 of that item with ease then it’s simply not within their budget. I hate to say it but the former mindset around money is exactly why most people can never seem to make strides in their financial life and why they are constantly worried about money. Misspending is the kryptonite to financial progression and as such if you want to never have to worry about money again then understand what you can and can’t afford.
You see, I was fortunate enough to have been bestowed the importance of saving from my parents. Part of this saving wisdom included how to determine if you can afford to buy something or not. They said that if you have to adjust your finances in any way to make that purchase then you can’t afford it. This advice served me well however I do find it rather vague and as such have reformulated it for those who want more clear cut guidelines to follow. The spending rule I advise people employ is the 5X rule. In short, if you can’t afford 5 of anything you want to buy, then you can’t afford one of them. For instance, if you can fit $15 in your budget then you can go ahead and order that $3 coffee.
Alternatively, if you don’t have $100,000 in the bank then that $20,000 car is going to have to stay on the lot. Now, I know that this savings multiplier is rather extreme but that’s the cost (pun intended) of properly managing your money.
By employing this spending technique, I promise you will avoid almost all overspending circumstances and as such will avoid unnecessary consumer debt that will have your stress levels mounting by the day!
Number 5: Consistently Invest For Retirement
Have you ever wondered what your life is going to be like when you’re 80? Will you be vibrant and fit or will you be soaking your dentures in a cup of water in your dilapidated retirement complex? As a young adult, looking that far into the future is not something we do regularly. Hell, most of us don’t even know what we are going to eat for dinner! Now, I know the future is uncertain but there is one thing I can guarantee that we will all have to face down the road and that’s retirement. Unless you plan on expiring at your desk then you need to put a plan in place to escape the working world. How do you set up a retirement plan that will have you leaving your job before you’re in adult diapers? Let me share with you exactly how you can do just that right now.
All retirement plans are composed of three core elements: your retirement target, your retirement timeline and your investing strategy. Your retirement target is the amount of money you need stashed away to retire. This figure is calculated based on your annual living expenses that you anticipate incurring in your golden years. Once you have your annual living costs, this target figure is usually derived through the use of a multiplier of say 25–35 times. For instance, if you are being conservative and using a 35X multiplier, if you anticipate living off $50,000 a year, you would need $1.75 million to retire.
After this amount has been calculated, the next factor you must consider is your retirement timeline. Ask yourself, at what age do I want to retire and determine how many years you have to amass this sum of money.
Once you have your retirement target in place and know how many more years you can tolerate working aka your retirement timeline, it’s time to determine your investing strategy. At a high level, this will involve determining what rate of return you must achieve and how much you need to invest to reach your ultimate retirement savings figure. For instance, using the $1.75 million figure I just shared, if you started investing at age 25 and wanted to retire at age 65, with a 7% return, you’d have to invest roughly $700 a month for the next four decades. Keep in mind that shortening your retirement timeline or lowering your investing returns will both increase the amount you need to regularly contribute with the opposite being true as well.
Now, I know for some, the thought of investing that much money every month can seem daunting, especially if right now you aren’t saving a ton of money. Well, the reality is ensuring you have a retirement nest egg in place, especially later in your adult years, is key to avoiding financial stress. There’s nothing worse than being 60 years old and realizing that you have no money stashed away for retirement and that you’re going to have to work until you’re 100 just to keep the lights on.
As such, if you can’t currently meet up with your retirement contributions, you have two choices. The first, is to adjust your anticipated living expenses in retirement accordingly. Lowering these costs is the easiest way to reduce how much you have to contribute towards your retirement every month. Alternatively, and the path I recommend you choose, is to generate more income that you can use to invest with. Yes, this will take an investment of your time and energy but when you don’t have to live in a cardboard box at 90 years old, trust me you’ll thank your younger self for having put in the work!