Financial literacy can be a hard concept to learn, especially for twenty somethings newly entering the workforce.
For many people, their early twenties is the first time where big financial decisions start to be made. Now that you’re receiving a steady source of income…what should you do with it? Save? Invest? Open a 401K? Spend on fancy dinners?
The answer is a little bit of everything. While it is important to save for the future, it’s also important to enjoy the now. The key to all of this is creating a healthy budget.
Budgeting is extremely hard and takes a huge amount of self control. That being said, once you establish good budgeting habits, it will come easier to you.
There are so many aspects to budgeting and finances in general, but as a start, think about ways that would work best for you in terms of budgeting. For some, a spreadsheet separating their finances work. Another popular method that you may have heard of is the envelope method. The envelope method is a great temporary form of budgeting that can create discipline and help you create healthy spending habits.
The envelope method is going to help you with your spending, so when choosing categories to include, think about places where you spend a lot of money where you can cut back. For example, “clothes,” “dining out,” “activities,” things of that nature.
Then, when you get paid, you’ll take your spending money out for the week, or two weeks if you are paid bi-weekly, and then separate into your different categories. Make sure you have enough set aside for all your other bills, and just take out the cash that you are going to be designating to your different envelopes.
Once you have your envelopes allocated, you’ll place your money inside. Then, when you go to make a purchase, say clothes for example, take the money out of that envelope and pay with cash. If you want to buy something online, you can do that with this method, but still take the money out of the envelope and put it into your checking account. Once you run out of money in a certain envelope, that’s it until next payday. On the flip side, if you have extra money in certain categories, you can carry that into the upcoming weeks. So say you put $30 in your “eating out” envelope and you only use $15. The next time you get paid, still put the typical amount of $30 in that envelope, plus the $15 you had from last week. So now you have $45 to eat out.
Even though this serves as a way to save money, it also helps you to make purchases guilt free on the things you want to buy. For example, you want a new shirt you see at the mall? Buy it with the $20 you already have set aside dedicated to that category. If you want to buy a coffee in the morning, take that out of your envelope dedicated to coffee. Cater your categories to you, so that you can make purchases without the guilt of spending, because you know that you have already taken care of all your saving goals.
Now for the twist. You can keep the envelope method super simple by just using envelopes you have laying around the house and writing the name of each of your categories on the front. If you want to take it up a notch, you can purchase a version of a budget binder on Amazon or Etsy, which are essentially fancier envelopes.
Amazon also has wallets where half is a regular wallet with a money holder and card slots and the other half is your budget binder. This wallet comes with tons of envelopes where you can separate your money right inside your wallet. It may sound a bit contradictory to buy something to help you save money, but if buying a fun new wallet or binder is what helps you save and it’s going to benefit you in the long run, it’s an investment worth making, because it’s always worth it to invest in yourself.
Using cash can be a hassle at times, and this method may or may not be one that you want to stick with for the long term, but this is a great short term way to start really monitoring your spending and get you started working with a budget.
Just remember not to carry too much cash around with you! If you end up not using all of the money in an envelope for a longer period of time and there is a lot of money in there, move it to a separate envelope and keep that at home.
If you are interested in this wallet, you can find it on Amazon. You can choose from tons of different colors, and additional envelopes are included so you’ll have plenty for all your categories.