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Townhall Finance...
Living Within Smaller
Means
By Carrie Schwab Pomerantz
Dear Carrie: I just graduated with a business degree and was lucky to
find a job in Los Angeles. I’m excited, but a bit worried, too, because
the job doesn’t pay that much and I know it costs a lot to live in LA.
It’s the first time that I’ve been completely on my own and money will
be tight. Can you give me a heads up money-wise? I don’t want to blow
this opportunity. -- A Reader
Dear Reader: Congratulations on your graduation and on getting a job.
The recession has made it really tough for young people entering the
work force, so as you say, you’re among the lucky.
And I count it lucky, too, that you want to be financially responsible
right off the bat. No doubt you’re going to have to make some choices.
But a little planning and discipline will help you pay your bills,
handle debts and still have some fun.
TRICKS FOR LIVING WITHIN YOUR MEANS
Your first priority is covering your bills. To make sure you have
enough, take a realistic look at what you need versus what you want.
Start by adding up your rent, transportation costs, groceries, utility
bills, student loan payments, car payments, etc. It’s always an
eye-opener to see these things in “black and white,” so write them down
or use an online budgeting tool.
Now subtract this amount from your take-home pay. What you have left,
however big or small, is what you can apply to the extras you want as
well as to savings. Maybe you’ll have to do without certain things at
first -- go out less or buy fewer clothes -- but with real numbers in
front of you, it will be easier to make smart choices.
If you find that you’re spending more than you’d like, there are plenty
of ways to scale back without completely slamming the brakes on fun.
For example, search around for a cheaper living situation -- find
roommates or rent a room in someone’s house. You can also try
negotiating lower rates for your cable or cell phone bill.
And there are small ways to save, too. Eating at home a little more
often, avoiding excess ATM fees, and canceling memberships and
subscriptions you don’t use are all small amounts that add up. Lastly,
if you leave your credit card at home, you won’t be tempted to charge
on things you can’t afford.
EASY WAYS TO PAY YOUR BILLS ON TIME
Next is paying your bills on time. If you don’t already have a bank
account with online bill pay, open one now, preferably one that has low
fees or even pays a bit of interest. Have your paycheck deposited
directly into this account if that’s an option. Then set up automatic
payments for your monthly bills. Stay on top of this account. After a
couple of monthly cycles, you’ll have a clearer idea of where your
money is going and what’s left over.
And just an extra word of caution: If you have student loans, don’t
ignore them. Get the repayment information and be sure to make every
payment on time. Delinquent student loans can be a real headache in the
future.
HOW TO KEEP A LID ON CREDIT AND DEBT
If there isn’t much left over once your bills are paid, don’t be
tempted to supplement your income with credit cards. The last thing you
want to do is run up debts that you can’t easily pay. Do yourself a
favor and limit yourself to one credit card. Charge only what’s
absolutely necessary and always try to pay your entire balance each
month. Having a single card will make life easier and get you started
on building a credit history. It will also prevent you from getting in
over your head.
PREPARING FOR THE UNEXPECTED
If possible, set aside a certain amount each month -- no matter how
small -- as an emergency fund. Ideally, you want this fund to grow to
cover three-to-six months of expenses. While things look bright now,
this would hold you over if you ever become unemployed.
And speaking of being covered, take advantage of any health insurance
offered by your employer. If that’s not available, look for a low-cost,
high-deductible policy. Health insurance (as well as car insurance) is
an absolute must at any age.
GETTING A JUMP ON SAVINGS
Saving money might seem impossible right now, but keep it top of mind.
Open a savings account, and as you get a handle on your monthlies, try
to put aside a few extra dollars. Set some goals -- a trip, a new car
or even a special night out -- and make them a motivation to get into
the savings habit.
And even at your age, put retirement saving on your list of goals. If
your employer offers a 401(k), set up at least a small automatic
contribution from every paycheck. Then you can increase the amount when
you have some more wiggle room. Starting now gives you a huge future
advantage.
There’s a lot to think about, but you seem ready to handle these new
responsibilities. It may seem daunting at first, but once you get
going, the sense of accomplishment and financial independence that
you’ll feel will make it well worth the effort. Best of luck!
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