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A Guide to Financial Independence

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A Guide to Financial Independence

Transitioning from being a carefree college student to a financially responsible person can be a huge shock for young adults. As many young professionals can attest, entry-level positions often come with meager salaries — but even with a small paycheck, saving is still possible.

If you find yourself in need of help when it comes to financial independence, try a few of these tips to implement a smarter savings plan.

1. Write Down Expenses

If you’re a budget newbie like I was, start by writing down all of your expenses and analyzing your spending. Little things like a $4 coffee may not seem like a big deal, but if you do that every single day, you’re spending over $100 a month on coffee. Managing my budget became a lot easier once I saw where I was wasting money. Cutting out the daily lattes and opting instead for a cup brewed at home helped me save around $100 a month. If you struggle to follow a budget, try an app like Mint to help you stay on top of your spending.

2. Apply the 50/20/30 Rule

Now that you know where you’re actually spending your money, figure out where you should be spending your money. I began by implementing the 50/20/30 rule that many budget experts recommend. You’ve probably heard of it, but this rule puts your budget into three simple categories.

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50 Percent: Absolute Necessities

This includes all necessities, such as rent, food, and utility bills like water and electric.

20 Percent: Financial Obligations

I put 20 percent of my salary into my savings account, a 401(k), and toward paying off my student loans. To help stay within this percentage, I negotiated an income-based repayment plan for my student loans, which drastically lowered my monthly payments to a more affordable range.

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30 Percent: Personal Purchases

Everything extra goes into the personal purchases part of my budget. My cellphone and Internet bills are included within this 30 percent. If you are having trouble staying under the 30 percent mark because of increases in your bills, consider going with a cheaper plan. Many people don’t realize that they are actually overpaying for Internet and not even utilizing the high speeds they pay for.

3. Follow the Rent Rule

Housing makes up a significant portion of most budgets. Many financial experts recommend spending no more than 30 percent of your gross income on your rent or mortgage per month (though that percent seems to be increasing as housing prices continue to increase). Like many young adults, I quickly realized that buying a house straight out of school was not in the cards for me. Though I dreamed of living in my own little home, I followed the “rent rule” and allotted 30 percent of my budget toward rent. Staying within that price range kept me from looking at apartments I couldn’t afford.

4. Consider a Roommate

I wanted my own place when I got out of school. I had spent my entire life living with other people, so why couldn’t I get a place of my own now that I had a reliable paycheck? After looking carefully at my finances, I decided to get a roommate instead — just for a bit. This cut my rent cost significantly, allowing me to save even more money every month to put toward a place of my own. While having a roommate may not be ideal, it is becoming more common for young adults fresh out of college. A few years with a roommate, especially if you’re living in a pricey downtown neighborhood, could allow you to save thousands of dollars that can be put toward the down payment on your first house.

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5. Cut Down on Dining Out

Food is a necessity, but going out to eat can get expensive fast. I would often rationalize eating out by thinking that I could get a cup of soup and a side salad cheaply at a restaurant, which is probably just a bit more than what I would spend on a meal at the grocery store anyway — plus it was so much more convenient! But add a drink and an appetizer, and my bill would always end up being more than what I intended on spending.

I quickly realized that those frequent restaurant meals had to stop if I was going to begin saving effectively. Now, I allow myself one good meal out each week and eat the rest of my meals at home. I also make it a rule to always bring my lunch to work; the only day I go out for lunch is Friday and I give myself a $10 limit. If you find this difficult, set aside an hour every week and plan out your weekly menu or use a meal planning app. Make a grocery list of everything you will need for the week: following a list prevents you from spending extra money on impulse shopping when you get to the grocery store.

6. Make Do with What You Have

After getting out of school, I felt like I had earned the right to buy the newest of everything. I worked hard — didn’t I deserve to treat myself? Unfortunately, spending on big-ticket items like a new car can stop you from saving money and push you further into debt. Although it wasn’t what I really wanted to do, I decided to stick with my old car instead of buying a brand-new vehicle.

Before you make expensive purchases (like that next-generation iPhone when your old one works just fine), ask yourself, “Can I do without this?” It’s tough to go without the things you really want, but saving your money now means you’ll be able to make more important purchases down the road.

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7. Look for Free Events

One of the hardest parts about budgeting is feeling like you don’t have any money left over after paying your rent and utilities, buying groceries, and setting aside some savings. Don’t forget to dedicate some time and resources to having fun and cultivating your hobbies. It’s important to have fun, but your slush fund doesn’t need to be big to be effective. Instead of expensive concerts or sporting events, find out what free events are available in your area. By seeking out these free events, I could make plans with my friends that didn’t involve spending a lot of money.

Although saving can feel impossible, you can get started with a few simple changes to your lifestyle. Take the time to set a budget and analyze your spending habits, and like me, you will find that adjusting to a savings plan is completely manageable, even on an entry-level salary.

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Last Updated on January 5, 2022

33 Painless Ways to Save Money Now

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33 Painless Ways to Save Money Now

In a difficult economy, most of us are looking for ways to put more money in our pockets, but we don’t want to feel like misers. We don’t want to drastically alter our lifestyles either. We want it fast and we want it easy. Small savings can add up and big savings can feel like winning the lottery, just without all of the taxes.

Some easy ways to save money:

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  1. Online rebate sites. Many online sites offer cash back rebates and online coupons as well. MrRebates and Ebates are two I like, but there are many others.
  2. Sign up for customer rewards. Many of your favorite stores offer customer rewards on products you already buy. Take advantage.
  3. Switch to compact fluorescent bulbs. The extra cost up front is worth the energy savings later on.
  4. Turn off power strips and electronic devices when not in use.
  5. Buy a programmable thermostat. Set it to lower the heat or raise the AC when you’re not home.
  6. Make coffee at home. Those lattes and caramel macchiatos add up to quite a bit of dough over the year.
  7. Switch banks. Shop around for better interest rates, lower fees and better customer perks. Don’t forget to look for free online banking and ease of depositing and withdrawing money.
  8. Clip coupons: Saving a couple dollars here and there can start to add up. As long as you’re going to buy the products anyway, why not save money?
  9. Pack your lunch. Bring your lunch to work with you a few days a week, rather than buy it.
  10. Eat at home. We’re busier than ever, but cooking meals at home is healthier and much cheaper than take-out or going out. Plus, with all of the freezer and pre-made options, it’s almost as fast as drive-thru.
  11. Have leftovers night. Save your leftovers from a few meals and have a “leftover dinner.” It’s a free meal!
  12. Buy store brands: Many generic or store brands are actually just as good as name brands and considerably cheaper.
  13. Ditch bottled water. Drink tap water if it’s good quality, buy a filter if it’s not. Get 
      a reusable water bottle and refill it.
    • Avoid vending machines: The items are usually over-priced.
    • Take in a matinee. Afternoon movie showings are cheaper than evening times.
    • Re-examine your cable bill. Cancel extra cable or satellite channels you don’t watch. Watch the “on demand” movie purchases too.
    • Use online bill pay. Most banks offer free online bill paying. Save on stamps and checks, and avoid late fees by automating bill payment.
    • Buy frequently used items in bulk. You get a lower per item price and eliminate extra trips to the store later on.
    • Fully utilize the library. Borrowing books is much cheaper than buying them, but in addition to books, most local libraries now lend movies and games.
    • Cancel magazine/newspaper subscriptions: Re-evaluate your subscriptions. Cancel those you don’t read and consider reading some of the other publications online.
    • Get rid of your land-line. Do you really need a land-line anymore if everyone in the family has a cell phone? Alternatively, look into using VOIP or getting a cheaper plan.
    • Better fuel efficiency. Check the air pressure in your tires, keep up with proper auto maintenance, and slow down. Driving even 5MPH slower will result in better fuel mileage.
    • Increase your deductibles. Increasing the insurance deductibles on your homeowners and auto insurance policies lowers premiums significantly. Just make sure you choose a deductible that you can afford should an emergency happen.
    • Choose lunch over dinner. If you do want to dine out occasionally, go at lunchtime rather than dinnertime. Lunch prices are usually cheaper.
    • Buy used:  Whether it’s something small like a vintage dress or a video game or something big like a car or furniture, consider buying it used. You can often get “nearly new” for a fraction of the cost.
    • Stick to the list. Make a list before you go shopping and don’t buy anything that’s not on the list unless it’s a once in a lifetime, killer deal.
    • Tame the impulse. Use a self-enforced waiting period whenever you’re tempted to make an unplanned purchase. Wait for a week and see if you still want the item.
    • Don’t be afraid to ask. Ask to have fees waived, ask for a discount, ask for a lower interest rate on your credit card.
    • Repair rather than replace. You can find directions on how to fix almost anything on the internet. Do your homework, and then bring out your inner handyman.
    • Trade with your neighbors. Borrow tools or equipment that you use infrequently and swap things like babysitting with your neighbors.
    • Swap online. Use sites like PaperBack Swap to trade books, music, and movies with others online. Also, look for local community sites like Freecycle where people give away items they no longer need.
    • Cut back on the meat. Try eating a one or two meatless meals every week or cut back on the meat portions. Meat is usually the most expensive part of the meal.
    • Comparison shop: Get in the habit of checking prices before you buy. See if you can get a better price at another store or look online.

    Remember that saving money is not about being cheap or stingy; it’s about putting money into your bank account rather than giving it to someone else. There are many ways to save money, some you’ve never thought of, and some that won’t appeal or apply to you. Just pick a few of the ideas that sound doable and watch the savings add up. Save big, save small, but save wherever you can.

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    Featured photo credit: Damir Spanic via unsplash.com

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