A Beginner’s Guide to Financial Mindfulness
As a young professional embarking on the quest for financial stability the saying, “youth is wasted on the young” starts to take on true meaning: Monday through Friday we are frying our retinas staring at a screen 40+ hours a week, and Saturday/Sunday maybe we grab drinks with friends to maintain a semblance of a social life, even though it would be better time spent working out, meal prepping and folding laundry. Clearly, budgeting and saving are low priorities, and when they come to mind there is a low-key sense of panic. Why?–Because we either don’t know where to start or we are afraid to face the reality that we are probably overspending. But if youth is waited on the young, then let’s at least plant the seeds for a cushy retirement.
Budgeting, saving and most importantly investing does not need to be overwhelming. During your lunch, instead of stalking your high school classmates on IG or FaceTiming your mom, take the hour to focus on your financial wellness. Here’s how…
The 50-30-20 Budget Plan:
This is an intuitive and digestible way to approach managing your money: 50% of your income goes to obligations (Needs) and the other 50% is split (30-20) between what you want now (Wants) and preparing for your wants of the future (Savings).
50% – Needs
We are talking about things necessary for survival: rent/mortgage, utilities, car payments, groceries, insurance, health care and minimum debt payment—and no, your HBO, Netflix and Hulu accounts are not considered necessities.
30% – Wants
Wants are all the things you spend money on that are not essential—This is where you categorize your spend on the Telfar bag you had to have, streaming subscriptions and date night with bae. Here is where you have room to play: You can scale it down if it has been a bad month and cook at home instead of ordering your 5th Uber Eats meal of the week. Or, you can splurge on a monthly membership to Equinox (the post lockdown deals are a steal!), instead of rolling around on a yoga mat in your living room. You decide what the little extra things are that make you happy.
20% – Savings
The gold standard is to save 20% of your monthly income. If that is not possible, that doesn’t mean throw in the towel and save nothing. Save as much as you can. Opening a savings account and depositing just $100 a month can make a difference. Your goal?—To accumulate three months of income as an emergency fund (think enough to fix your car if it breaks down, pay for the vet if your dog swallows a sock whole, or pay rent if your boss goes rogue and fires you). Beyond this liquid emergency fund, invest the rest. Otherwise, you’re just hoarding money that is growing at a rate slower than inflation.
When people hear the word savings, they do not necessarily think of investing, but they should! Make your money work for you—How? Through investing in secure well diversified investments—we’re talking blue chip stocks, low risk bonds and real estate, so you are not solely dependent on the performance of the financial markets. The best feeling is watching your investment portfolio grow over time. This is called passive income—i.e., your money is making you more money, while you do nothing.
For those of you intimidated by the idea of becoming a real person and planning for the future, don’t be. The first step is saving. Once you have accumulated enough in your savings account to have a solid cushion for a rainy day, start investing. With platforms like School of Whales, you no longer need large amounts of capital to begin investing, and if you add 20% of your income to your existing investment on a monthly basis (once your emergency savings is solid), then you maximize the returns on that small initial investment.
The 50-30-20 budget plan allows you to prepare for the future, while not compromising your lifestyle. Enjoy your youth AND be ready for retirement! But don’t wait, secure investments’ success are maximized by growing over long periods of time.