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General Investing

Bills Before Frills Budgeting and Money Basics

A man and a woman holding pens in their hands while looking over bills.

When you first start out on your own, managing your money and the concept of personal finance may seem intimidating. That’s particularly true if your parents didn’t talk to you about money.

Without a formal system to teach kids and teenagers about money, many students graduate from high school with a shaky understanding of financial concepts.

Only 19% of 18- to 19-year-olds feel they have a solid understanding of credit. The vast majority, or 76%, wish their high school taught a class on personal finance.¹ The numbers show young people are eager to learn how to manage their money.

Not sure how to get started? Need a nudge in the right direction? Here’s what to know.

Ask Questions

Young adults are more open to talking about money than their Gen X or Boomer parents, and that’s a good thing.² Even so, there are still factors that hold people back from asking questions. Or, they feel ashamed for not understanding financial concepts and clam up.

Talk About Money

You can’t learn without trying—so talk to your parents or friends. Follow a money blog or podcast that explains concepts in an accessible way. Or join an online personal finance forum to learn about financial concepts.

Learn How to Create a Budget

One of the most basic but important financial skills is budgeting. Armed with a budget, you can see where the money goes and set savings goals. It’s the keystone to financial security.

To track your spending, write everything down or enter it into a spreadsheet. Then categorize the expenses. You may also use one of the many apps available that help you build a detailed budget and track expenses. Many can sync with your accounts to monitor spending in real time.

Next, allocate what you need to cover fixed costs like rent, utilities, groceries, and transportation. Some experts recommend the 50/30/20 rule. That’s 50% essentials, 30% personal, and 20% savings and debt reduction. This can vary depending on living and housing costs where you live and whether you’re paying off student loans or other debt.

What to Do if Your Budget Falls Short?

If you fall short of savings goals or have difficulty whittling down debt, analyze subscriptions like streaming video and music or gym membership.

Your local library could have resources for free video, music and books or ebooks. Or maybe you can swap out a gym membership with an exercise app. You might also reduce your food budget by cooking more often.

Build an Emergency Fund

The coronavirus pandemic has hit young people’s finances harder than that of their elders. Four in 10 Americans age 18-29 say the pandemic is a major threat to their financial situation.³ The crisis highlights the importance of a rainy day fund for emergencies.

Part of that 20% savings category should include money for an emergency fund. Unexpected costs like a car repair, surprise medical bill or a job loss can put a major dent in your finances.

Putting money aside for emergencies may feel challenging, but even if you can only save $40 per month, that’s something. Make it automatic, and add to your savings account before you spend money on fun extras. Try our savings goal calculator to see how small amounts can add up. The key is to create a new habit.

An emergency fund cushions the financial impact of unexpected costs.

Choose Cheap Fun

Once you’ve set a financial goal, you might need to say no to budget-busters. Saying no to an impromptu invitation out to sushi with friends is hard. So budget a bit of money for going out. That way you don’t have to say no all the time, and you can still keep your spending in check.

You could also suggest a hike or a potluck instead. The goal is to eliminate budget creep with unplanned spending, not put yourself on a starvation diet.

Reframe Your Money Mindset

Money skills aren’t rocket science. But all the same, it might help to understand that money is more emotional than rational. That’s why habits about money can be tricky to change. We all have a money “script.” We pick up financial messages from our families when we’re very young, which shape our attitude toward money.

Some of us are vigilant about money, operating from a scarcity mindset ruled by anxiety. Others just spend what they have. Once you understand your unconscious attitude toward money, it’s easier to change your habits.

Time for a Jumpstart

Need help with a financial plan? Let’s talk.

Survey: Generation Z Keen on Learning About Personal Finance and Credit, Experian, September 2019.

Would you Want to Discuss Money on a First Date? Millennials May, a Survey Suggests, USA Today, April 2019.

Experiences With the Covid-19 Outbreak Can Vary for Americans of Different AgesPew Research Center, June 2020.

You could lose money by investing in a mutual fund, even if through your employer's plan or an IRA. An investment in a mutual fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.