10 Money Tips – Be Smarter With Your Cash

Without a doubt, the majority of my anxiety as a 23-year-old working adult is related to my finances, and I would assume that the rest of my generation feels the same way.

As of last December, 40 million Americans had student loan debt, with the total amount due approaching $1.2 trillion. Since 1999, student debt has grown by over 500%. Even scarier, salaries have not kept up — in fact, they haven’t even come close: Since 2000, the average yearly earnings for someone between the age of 24 and 35 has decreased by a full $10,000.

The student debt crisis is extremely troubling for 20-somethings, but it’s definitely not the only major financial problem we face. With the effects of the recent recession still lingering, work has become harder to find. According to a Demos.org report from 2011, 48% of 25- to 34-year-olds said that they were unemployed or underemployed, and a full 70% said that it was harder to make ends meet than it was four years prior. The economy has recovered since then, but times are still very hard for young people who are starting their careers.

To get a sense of the best ways 20-somethings can manage their money, and their money anxiety, I corresponded with several financial professionals to put together a list of 24 financial tips. Be forewarned: Following the advice listed here will require you to be disciplined and focused, and to put a great deal of effort into your financial well-being. If you are ready to work hard, you can create a strong financial foundation for yourself while you’re still in your twenties.

1. Be Realistic About Your Goals

It’s important to understand that saving doesn’t come easy. It takes a lot of work and a lot of time. As Ross Lawrence, a 26-year-old personal finance advisor at the Missouri-based Hoffman Financial Resources told me, “After graduation, 20-somethings often have an over-inflated value of themselves. Graduates tend to take on a lot of debt with the expectation of making tons of money. BMWs, house down payments, and 3-carat canary diamond engagement rings are not going to fall from the sky. It took your parents 30 or more years to accumulate the things they have. It will probably take you the same amount of time.”

2. If You Can Stand It, Live at Home

Thomas F. Scanlon, a CPA at Borgida & Company, a certified public accounting and consulting firm in Connecticut, recommended this one, saying, “If you can stand it, live at home. As long as you can. Very low overhead. Makes it easier to save.” Of course all of that is true, but for some of us, the freedom that comes with living on our own is worth more than the potential savings of staying with our folks.

3. Find the Fun in Penny-Pinching

Learn to love the lifestyle that goes with being frugal and young, particularly when it comes to buying clothes (try secondhand stores), cooking (see how delicious and healthy a meal you can make for the cheapest dollar amount), and outfitting your home (many decorations and even smaller pieces of furniture can be put together for much cheaper than the sticker price). The key word is lifestyle: being smart with your money is a lifestyle choice, and a thrifty way of living goes hand in hand with the DIY (do-it-yourself) approach.

There are literally thousands of great DIY resources online. This list from Buzzfeed, 41 Creative DIY Hacks to Improve Your Home, for example, features simple DIY projects that can help you save money. As for creative and cheap approaches to cooking, check out A Girl Called Jack, the blog of Jack Monroe, a young, British single mother who has been called Britain’s “Austerity Celebrity.” (Though her story is moving and eye-opening for anyone who worries about the economy, her writing and work has also attracted legions of fans.)

4. Spend Less Than You Earn

Simply put, you have to spend less money than you make. I know this sounds blatantly obvious, but many young people don’t live by this central tenant when dealing with their finances. Sean Nisil, a financial planner from San Diego and creator of the blog Intentional Stewardship, can not stress this enough: “Make a formal budget and spend less than you earn. Seriously. As a financial planner, I can attest that this is the number one rule to financial stability, regardless of whether you have millions of dollars or just a few pennies.”

5. Make a Budget

To spend less money than you earn, you need to make a budget, and you need to take that budget seriously. Nisil recommends using Mint.com; the website service sends email alerts when you’ve exceeded your budget in order to keep you accountable (or at least attempt to). Ellie Kaplan, the CEO and Founding Partner of the New York-based Lexion Capital Management, one of the few 100% woman-owned asset management firms in the US, recommends a 50-30-20 plan to help young people start a budget: 50% of your income should go to necessities like rent, student loan payments, bills, and groceries; 30% is spendable income; and 20% goes into savings. Of course, this not a hard and fast rule. If you live, say, in New York City, the cost of rent alone may be well over 50% of your income.

6. Really Track Your Spending

Ideally, you will know exactly how much money you spend every week, as this is the only way to stay true to your budget. Alan Moore, Founder of Wisconsin-based Serenity Financial Consulting, says, “There is one thing that most wealthy individuals have in common — they know how much they are spending. While ‘spend less that you earn’ is good advice, you can’t follow it without tracking your spending so you know exactly how much is going out every week.”

This means tracking everything, down to every single Starbucks (NYSE:SBUX) coffee, every single quarter spent on laundry. Write it all down.

7. Put Saving Ahead of ‘Wish List’ Spending

To help with your budgeting, it is important that you assign relative value to certain expenses and savings so that you can prioritize your financial health.

As Gene Natali, author of the personal finance book The Missing Semester, tells me via email, “It’s as simple as sorting obligations, needs, and wants. Obligations must be taken care of first. Needs vs. wants allow for more flexibility. This allows us as individuals to list (in order of importance) the places our money will be going (also called budgeting).”

Natali believes that one of the major problems with our country’s economic well-being, and with that of 20-somethings specifically, is that we allow our spending to dictate how much we save. He argues that we should assign more value to saving than spending, and that our saving goals should dictate our spending. In other words, we should only spend on unnecessary purchases after we’ve saved a certain amount. That, of course, requires self-discipline.

8. Open a Savings Account

If you do not have a savings account, you should open one immediately. Then, make a point of not withdrawing from it — only make deposits. Sean McComber, CFP at the Maryland-based Key Financial Group advises, “Make a regular and recurring transfer from your checking account into a savings account every month as part of the bills you pay.”

Saving should be a regular thing, just like playing for your rent or electricity. In this way you will accumulate money for when you need it later in life.

9. Open a 401(k)

If your employer offers a 401(k) program, enroll right now. (Leave this tab open, go do it, and come back to finish reading my story.) A 401(k) will allow you to put away a certain percentage of every paycheck automatically. Moreover, the money in your plan will be invested in funds of your choosing, and therefore increase in value over time (decades) with those particular funds.

Most every one of the professionals I spoke to for this story agreed that a 401(k) is a great way for young people to start saving and accumulating wealth. As personal finance advisor Ross Lawrence says, “With student loans, car loans, and run-down one-bedroom studio apartments, your IRA or 401(k) will quickly become your biggest asset. Don’t just ‘set it and forget it.’ Take time to understand what you are investing in and what you can expect going forward.”

10. Take Advantage of “Free” Money

One of the best examples of “free” money is when your employer matches contributions to your 401(k) retirement account. If you know your employer matches contributions, there is no reason in the world why you shouldn’t open up an account and start putting money away while earning “free” money in the process. Other examples of “free” money might include lunch or travel paid for by your employer.

As San Diego-based financial planner Sean Nisil puts it, “Missing out on free money is stupid. Don’t be stupid.”