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Content by F. Crumlish DMFLF Contributor
Sometimes we all need to find some extra cash each month, either to handle an emergency, save for a goal, or just try to improve our overall financial situation. If you search the internet for tips on “best ways to stretch a dollar,” you will find hundreds of articles and tips. There are dozens of books on personal finance with chapters on managing your spending. Your friends and family will also have suggestions. Some are easier to implement than others. Here are some ways you can use to stretch your dollar:
Make a budget and stick to it. Budgeting is key to understanding where your money goes. Once you have a budget, make it a point to monitor it and freeze your spending once you hit that number each month. This may not be possible in all cases, such as if you have an emergency car repair. But it can work very well for discretionary expenses such as entertainment and dining out.
Pay yourself first. When you create a budget, establish an amount that you will automatically transfer to your savings or investment account from each paycheck, so that less of your paycheck is immediately available to spend. If you don’t “see” it in your checking account, you are less likely to spend it. Your savings grow.
Needs versus wants. Before making a purchase, ask yourself if what you intend to buy is something you need, as opposed to something you want. This will help to avoid impulse purchases, such as a lottery ticket, can of soda, or snack. More significantly, if your phone works well, do you really need to upgrade it to the latest model? When shopping, you can avoid impulse purchases if you ask yourself if the item is something you really need before heading to the checkout counter. You can buy things you want if your budget allows it, but be honest with yourself. Don’t describe branded or luxury items as needs if there is an acceptable, less expensive or “prestigious” alternative. This is an especially good rule to follow when shopping for a car. A reliable car doesn’t have to have a leather interior, heated seats, or an eight channel stereo.
Grocery shop with a list. Supermarkets are filled with things you really do not need displayed in a manner that entices you to buy them. If you make a list, and stick to it, you will avoid buying extra items. If you reach for something off the list, ask yourself if it is really something you need. When making your list, check for coupons and comparison shop brands. Sometimes store brands are significantly less expensive than name brands for comparable items.
Don’t Shop When Hungry - Shopping for groceries while hungry often makes it difficult to avoid the impulse to buy food items not on your list. A 2015 study found that hunger promotes the acquisition of non-food items as well - in any store. The upshot of this is that you should never go shopping - for anything - on an empty stomach.
Bring your lunch to work. - It costs significantly more money to eat out than to bring your lunch. Even if you bring your lunch a few days a week, you will save.
Avoid sales - unless you are sure it’s a deal. A “Sale” is a marketing ploy to entice you to buy things you don’t really need, or clear out unsold items. Also, just because something is marked as “On Sale,” doesn’t mean it isn’t available at a better price elsewhere. When shopping sales, make sure you understand what things cost. Ask yourself if the item is something you really need. Remember too that “sales” often occur several times a year, so you will likely get another chance to buy what you want.
Don’t buy more internet or phone service than you need. The more internet speed or phone data you buy, the higher your bill. “Gig” speed internet is designed to enable several devices to stream video or game simultaneously. If you only have a few devices, or do not game or stream video, you can probably get away with a slower service such as 200 or 400 bps. You can always upgrade your service later, if you find your internet too slow for your usage. Similarly, you can track your cell phone data usage to see if you really need “unlimited” data or if a less expensive plan will suffice.
Review subscriptions. Subscription services have become the norm for video, music, and other programming. Businesses such as gyms and yoga studios have also use a subscription model. And then, of course, there are magazines and newspapers. Review your subscriptions to see if you are using them. Cancel those you do not use. You can always restart them later on should you wish to.
Pay off your credit cards, highest interest rates first. Credit cards carry very high interest rates. You should never charge more than you can pay off, in full, by the due date each month. The reason is that paying on time keeps your credit good, and paying in full means you do not pay interest to the bank. If you do have credit card debt, you want to pay it off as soon as possible. You should do this by paying off the card with the highest interest rate first, while keeping the others current. Eliminating all interest keeps more money in your bank account. If you find yourself unable to avoid charging more than you can pay in full each month, stop using your credit cards. Pay with cash or a debit card instead.
Save your change - Small change adds up. Drop it in a jar, then take it to the bank later on. If you use a debit card, some banks offer “keep the change” programs where they round your purchase up to the next dollar and deposit the difference in your savings account. For example, if you buy something for $9.50, the bank will round it up to $10.00 and deposit $0.50 to your savings account. Over time, your savings add up.
Graduating from college is an exciting milestone, but it can also be a time filled with fear and anxiety. After all, students are now responsible for their finances. Fresh graduates often worry about how soon they will achieve financial independence, which is something they expect to do by age 22. However, CNBC reports that only about 24% of graduates earned an annual income 150% above the federal poverty level — the marker of financial independence. This is a significant drop from the 1980s' 32% rate. Learning how to manage your finances is key to reaching this goal, and one skill you will need is budgeting. This can help you stay on top of your money until you can consider yourself, more or less, completely self-sufficient.
How to Create a Post-College Budget
The objective of budgeting is to provide a systematic way to control your finances within a specified time frame. For instance, if you’re 22 and you want to be financially independent by 25, then how much you spend and save should be in line with the three years you have to complete your goal. Getting a good start on your savings post-college will also be crucial to your financial stability later on. Here’s how to create your budget after graduating:
1. Determine your monthly income
Start by figuring out how much money you’re taking home every month. Factor in all your income streams and then calculate how much you have after tax, social security, and insurance deductions. You will see this amount reflected on your payslips or earning statements from your employer.
2. Account for your expenses
Once you have determined how much money you are earning, now you should find out how much you are spending. There will be two types of expenses you will be dealing with: fixed and variable. The first recur in regular intervals with fixed amounts. Variable expenses can change depending on when you decide to spend on them. Some examples of fixed expenses include your rent or mortgage, utility bills, and minimum debt repayments. Eating at restaurants and spending on entertainment or hobbies are examples of variable expenses. It also helps to categorize your expenses during this step by the level of necessity.
Once you’ve subtracted the necessary expenses from your income, you can determine how much you have left for savings and optional expenses. However, if your expenses outweigh your income, then you need to determine where you can cut your spending. This is where budgeting becomes useful. NerdWallet explains the 50/30/20 approach as a good starting point for beginners. In this budgeting system, 50% of your income should be allotted to necessities, such as rent, minimum loan payments, and groceries. You can use 30% for whatever you want, but 20% should be dedicated to savings and extra payments on high-interest debt.
4. Have a support system
Sticking to your budget can be challenging, and you may not always commit to the 50/30/20 system. It’s easy to feel flush with extra money once you start earning, but the last thing you want is to be trapped in debt. In an interview with Petal Card, young professional Florrie describes how she struggled with an online shopping habit. After confessing to a couple of friends that she couldn’t afford to go on a group holiday, they admitted to being in similar situations. Together, they try to live more frugal lives and support each other when temptation arises. Having a support system will hold you accountable to someone else, and this can motivate the development of better spending and saving habits.
Here at the DoughMain Financial Literacy Foundation we asked the question - ‘Will The Next Generation of Adults Reach Financial Independence?’ By re-envisioning social and personal priorities differently and committing to one’s financial goals, we believe you can.