In the course of my discussions with fellow millennials, I have learned that there is a lack of education around spending discipline. The amount of disposable income from millennials is astounding, yet I see countless examples of young adults living beyond their means.
Since I was five, I have learned to be disciplined with my money. I have never been in debt, even after four years of university education. I save and invest. Plain and simple. Here’s the guide to teach you.
Choose a bank.
Key word being bank here. I have opened accounts with all sorts of financial institutions and found that an established bank is hands-down the way to go, just for the peace of mind and security alone. Go with one you can establish a long-term relationship with. You will potentially be using all of their services.
Open a savings account.
Some people open chequing accounts. Not necessary. The chequing account costs more money and does almost the exact same thing as a savings account. Stick with savings at the bank you choose. Open a high-interest account that will generate additional money for you.
Avoid the fees.
I pay no fees for my bank accounts. Try signing up for a free credit card with no annual fee at the bank. By using multiple services, the bank is more likely to waive all fees.
Pay off your credit card today.
Stop accumulating interest by paying off your credit card balance before the end of the grace period.
Set a limit on your credit card.
Banks will encourage you to increase your credit limit. Do not fall into this trap. Keep it low to keep your spending in check.
Set up an investment account.
It is easy to set up an online brokerage account and get going with stock investing. Practice with a free account to start, and be aware of the risks involved. I have an automatic schedule where my savings are invested in both the US and Canadian stock exchanges as index funds. To date I’ve made 8-10% annual returns without too much risk or effort.
Reinvest.
The greatest secret to growing your money is reinvesting what you earn. Take the interest or dividends paid out and re-buy the same fund. Some plans allow for automatic dividend reinvestment. Take advantage of this.
Plan for retirement.
If your employer contributes to your retirement plan, you should join the program. Not only are you diversifying your investment portfolio, you are receiving free income. Try limiting the amount you invest here, as retirement plans limit your financial control.
Consolidate accounts.
My bank account, investment account, retirement account and advisor account all live under one financial institution. I spend less time managing funds with the added visibility of everything under one roof. Migrate any lingering balances to your main financial institution and cancel the accounts you never use.
Budget ruthlessly.
People will tell you how to spend your money. Stop listening to them and take control. If you want to enjoy the little things in life, you will need money and discipline on when to use it. Being a minimalist, I encourage you to spend less on the things that are material or impulsive and spend more on experiences. Cap your spending to a monthly amount and review your financial statements monthly to ensure you are on track. If your income grows, adjust your spending accordingly on the things that matter, such as education, self-improvement or additional investing.
Automate saving.
Every first day of the month my money automatically disappears. My savings account is nearly empty. I psychologically feel like spending is a privilege. Behind the scenes, I have built automated processes to transfer funds to my investment account to buy stocks and even pay bills and cover my credit card balance. Talk with your financial institution to set up a similar process; it costs nothing and saves you the manual labour of moving your money around.
Review your phone bill.
I recently cut down my phone bill by over 30% by removing my long-term carrier contract and reducing my data plan. Do people still need data when there is wi-fi everywhere? Not me. I now have less anxiety over the dreaded phone bill and only spend on what I need for talk and text. Go monthly to remove the handcuffs that typically come with a contract plan.
Buy groceries.
If you have a kitchen, use it. You will automatically save at least 15% of your food spending in gratuities alone, just by cooking your meals. I can make a kick-ass salmon dinner with less than $4 by buying all of my food in bulk.
Live within your means.
If you can only afford to live in a studio apartment, start there. The mansion will come eventually. I personally prefer small spaces as I like the idea of focusing more on my hobbies and less on cleaning duty. I recently managed to find an apartment that is very reasonable to own. If you have enough for a downpayment, I would encourage investing in real estate. Renting a place is like automatically throwing away money. I can only justify renting if the cost is low. Usually a low rent can be had by living with your parents or sharing accommodations. If you travel consistently, you can rent out or AirBnB your place for extra cash.
If you like these budget tips, please share with your friends.