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A Guide to Financial Independence

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 2, 2019

How Personal Finance Software Helps You Get More Out of Your Money

How Personal Finance Software Helps You Get More Out of Your Money

Do you know what mental health experts point to as the biggest cause of stress in the United States today? If you said “money,” then ding, ding, we have a winner!

Three out of four adults today report feeling stressed out about money at least part of the time. People are either worried about not having enough money or whether they’re putting the money they do have to use in the best possible way.

Your money is either in charge of you or you’re in charge of it, there’s no middle ground. Using some type of personal finance software can help alleviate some of that money stress and better allow you to manage your money effectively. Without it, you may just be setting yourself up for constant financial worry. Life is already tough enough and there’s no need to make it more difficult by simply hoping your money issues will all work out in your favor. Hint: they won’t.

This guide will help you to understand how personal finance software can better assist with both accomplishing long term financial goals and managing day-to-day aspects of life.

Whether it’s tracking the savings plan for your child’s college fund or making sure you won’t be in the red with the month’s grocery budget, personal finance software keeps all this information in one convenient place.

What Exactly is Personal Finance Software?

Think of it like the dashboard in your car. You have a speedometer to tell you how fast you’re going, an odometer to tell you how far you’ve traveled, and then other gauges to tell you things like how much gas is in the tank and your engine temperature. Personal finance software is essentially the same thing for your money.

When you install this software on your computer, tablet, or smartphone, it helps to track your money — how much is going in, how much is going out, and its growth. Most personal finance software programs will display your budget, spending, investments, bills, savings accounts, and even retirement plans, levels of debt, and credit score.

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How It Leads to Financial Improvement

It shouldn’t come as a surprise, but people who regularly monitor their finances end up wealthier than those who don’t. When you were a kid, keeping track of all of your money in a porcelain piggy bank was pretty easy. As we get older, though, our money becomes spread out across things like car payments, mortgages, retirement funds, taxes, and other investments and debts. All of these things make keeping track of our money a lot more complicated.

Some types of personal finance software can help make things a little less complicated, setting you up to meet financial goals and taking away some of the stress associated with money.

Even if you already have a Certified Financial Planner (CFP) some type of personal finance software can be of great benefit. Whereas CFPs focus on the big picture of your money, they don’t handle the day-to-day aspects that determine your overall financial health.

It’s also not nearly as complicated as you might think and can take out a lot of the tedium that comes with doing everything on an Excel spreadsheet or with a pad and pencil.

Types of Personal Finance Software

When it comes to personal finance software, it generally fits into two categories: tax preparation and money management.

Tax preparation software such as Turbo Tax and H&R Block’s software can help with everything from filing income taxes to IRS rules and regulations and even estate plans. Plus, there’s the benefit of filing online and getting your refund check a lot faster than if you were to mail off your forms after waiting in line at the post office.

For the purpose of this article, however, will be focusing more on the personal finance software that aids with money management.

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Money management personal finance software will help you to see the health of your cash flow, pay down debt, forecast for expenses and savings, track investments, pay bills, and do a host of other things that 30 years ago would have practically required a team of accountants.

When to Use Personal Finance Software

So far we’ve gone over what exactly personal finance software is and how it can be a benefit to your money. The next logical step in this whole equation is determining when it should be used and how is the best way to go about getting started using it.

Below are four of the most common and practical ways to use personal finance software. If all or any of these apply to you and your money, then downloading some type of personal finance software is going to be a smart move.

1. You Have Multiple Accounts

There’s a good chance that when it comes to your money, it’s in more than one place. Sure, you probably have a checking account, but you may also have a savings account, money market account, and retirement accounts such as an IRA or 401k.

If you’re like the average American, you probably have two to three credit cards as well. Fifty percent of Americans also don’t have loyalty to just one bank and spread their money across multiple banks.

Rather than spending hours typing in every detail of every account you have into a spreadsheet, many programs allow you to easily import your account information. This will help to eliminate any mistakes and give you a bird’s eye view of everything at once.

2. You Want to Automate Some or All of Your Payments

Please don’t say that you’re still writing out paper checks and dropping each bill in the mailbox. While it’s noble that you’re doing your part to keep postal workers employed, we’re 18 years into the 21st century and you can literally pay every bill online now.

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There’s no need to log into every account you have and type in your routing number either.

With personal finance software you can schedule automatic payments and transfers between all of your imported accounts. Automatic transfers will help to make sure you have the necessary funds in the right account to ensure all bills are paid on the appropriate date. Late fees are annoying and do nothing but cost you money. It’s time that you said goodbye to them once and for all.

3. You Need to Streamline Your Budget

Perhaps the best feature of personal finance software is that it allows you track everything going in and out of your virtual wallet.

Nearly every brand of personal finance software out there has easy-to-read graphs and charts that allow you track every cent you spend or earn, should you choose. You might be pretty amazed when you see just how much you spent on eating out last month or if you splurged a little more than you should have on Christmas gifts last year.

Every successful business on the planet has a budget and using personal finance software can help you trim the fat on your spending in ways that affect your everyday life.

4. You Have Specific Goals to Meet

Maybe it’s paying off debt or saving for up something like a European vacation. Whatever your financial goal is, whether it’s long-term or short-term, personal finance software programs are one of the savviest ways to go about reaching those goals.

You can do everything from set spending alerts to notify you when you’re over budget to automating what percentage of your paycheck goes to things like retirement investments. The personal finance software that you choose should show you exactly how close you are to hitting those goals at any given time.

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How to Get Started

From AceMoney to Mint and Quicken, there ’s no shortage of personal finance software apps out there. Many of these programs are free to download and will allow you to pay bills, invest, monitor your net worth and credit profile, and even get a loan with the swipe of a finger.

Other programs may only offer you limited services and will require a one-time fee or subscription to unlock all that they offer. These fees can often vary from as little as two dollars to 50 bucks a month.

It’s best to start off with the free version and then gauge whether you’re able to accomplish everything you’d like or if it’s worth exploring one of the paid options. Often times the subscription programs come with assistance from financial planning and investment experts — so that can be a real benefit.

When deciding which personal finance software program to use, it’s also important to look at how many accounts you wish to monitor. Certain programs limit the number of accounts you can add. Be sure that if you have checking, credit card, and investment accounts to monitor, that you choose a service that can monitor them all.

Finally, when looking around for the right personal finance software that meets your needs, make sure that you’re comfortable with the program’s interface. It shouldn’t be expected that you recognize every single feature instantly, but if the features don’t seem readable and manageable to you, then you’re not as likely to use it and get the full benefits.

Final Thoughts

Personal finance software can go a long way in helping you to take control of your money and meeting your financial goals. It’s important to note, however, that some focus more on budgeting and expense tracking while others prioritize investing portfolios and income taxes. Explore several different programs and read reviews to find the one that’s right for you.

In this day and age, managing one’s personal finances in a secure manner that allows the user to have a real-time visual representation of their money is easier than ever before. With the numerous applications that are out there — both free and subscription-based — there’s no reason that every person can’t take control of their money and ensure they’re making smart money moves.

Featured photo credit: rawpixel via unsplash.com

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