Guest blogger: Marian Millikan, CPA
As young professionals, we all know we should be saving money. Easier said than done, right? We’ve always heard people talk about how great saving is, and how important it is for the future. We’ve read the articles, talked about it with friends and family and even probably had a fight or two about spending money with a significant other.
Let’s face it, saving is hard. It’s human nature to want to enjoy the fruits of your labor and have fun with the money you earn. Unfortunately, after paying rent, credit card bills, school loan payments, food, and utilities, you may not have very much left, if any at all. There are entire books, volumes on the topic, so let’s start small. With a few basic pointers, a few philosophical coupons if you will, you can start saving.
Make the Effort
As a young professional, you CAN start small. The first step is getting in the mindset of saving. Like learning how to ride a bike, you’ll probably fall off a few times before you get the hang of it (Did you really “have to have” those Jimmy Choo’s and Prada sunglasses… well, ok, but just pick one). The goal is to start small, so as your expenses begin to decrease you can start to slowly put more money away into savings. Once you establish a comfortable level of spending, stick to it. This way, you can put most of the money you get from a future raise or bonus directly into your savings account.
Make a Budget and Stick to It
In order to figure out your financial comfort level, you need to set up a budget. This can be as simple as tracking your monthly inflow (cash you are earning) against your monthly expenses. Track this information for 1-2 months by keeping a tally of what you spend and what you earn (The VSCPA has a great template to help with this on their website). Figure out how much money you have left over after all the bills are paid and estimate the portion of that amount that you want to save. Hopefully, you have enough money left over to treat yourself to a manicure to celebrate a job well done.
If you find yourself in the red, don’t panic… just don’t get that manicure yet! Since you have tracked your expenses, you can determine what has caused you to go over budget. Sometimes you don’t realize how much you actually spend on things like going out to eat or entertainment until you actually see them written down on paper. Maybe it was those $4 lattes you drank each morning or perhaps the $3 magazines you had to pick up at the grocery store so you could stay on top of Hollywood’s latest scandal. Whatever the case may be, focus on those areas and make a conscious effort to spend less on them next month.
Out of Sight but Not Out of Pocket
You should separate your savings from your everyday funds. This will help you be able to see your savings accumulate, much like you used to feel your piggy bank get heavier when you were a kid. Now that you are older though, it’s not enough to have just one piggy bank; you need several so you can save in different ways for different milestones. At a minimum, you should have one savings account for your retirement (such as a 401k or IRA), one for short term goals (Tahiti, here I come), and one for rainy days to pay for the unexpected (so THAT’S what the oil light means).
Dividing your savings into different funds and keeping it away from your checking account will help reduce your desire to spend it all at once. With online banking, it’s never been easier to create new accounts and set up automatic drafts from your checking account. By doing this, you can immediately set aside the money you’ve decided to save on payday without even having to think about it.
The VSCPA Can Help
There are many tools you can use to help meet your savings goals. The VSCPA’s Financial Fitness Program is a financial literacy initiative that started in 2004 to help improve the financial health of Virginians. The program provides free workshops to address financial issues you may be facing in both your professional and personal lives. The program is led by CPA’s and can provide you with additional tools to get your finances back into shape. Sign up to learn more about budgeting, saving, credit, retirement planning, estate planning and more.
Contact the VSCPA Education Team at 1-800-341-8189 for more information on how to attend.