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FINANCIAL ADVICE FOR YOUR 20s & 30s
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Editor's note: This article appears in Kiplinger's special issue Success With Your Money.
One of the first things you'll learn about money when you're just starting out is that you always seem to need more of it. Especially on an entry-level salary, you'll look forward to the day when you're no longer living paycheck to paycheck.
But people who are older (and better paid) will tell you that it doesn't always work that way. On the contrary, the more you make, the more you tend to spend. The secret to getting your finances under control isn't necessarily to earn more (although that certainly helps) but to trick yourself into spending less and saving more of what you have.
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Tricks of the trade
While establishing her career as a comedian in New York City, Lynne Koplitz has come up with a whole repertoire of simple yet effective ways to manage her money. Before she got her showbiz break, she waited tables and earned a big chunk of her income in cash. As a result, she acquired habits that now help make her money last between gigs. To keep from overspending, Koplitz divides her expenses into categories and puts cash for each -- for clothes, for fun and even for her dog -- into an envelope.
Not only does she toss spare change into jars -- keeping quarters separate to use in parking meters -- but she also stashes dollar bills in a drawer. "Then you can grab a few singles to pay for takeout instead of breaking a bigger bill, which is the road to disaster," says Koplitz, who makes it a habit never to break a Benjamin.
When she was a waitress, Koplitz kept her first $50 in nightly tips as spending money. After that, she saved half of everything she made. She still has an automatic savings plan, only now she tells her accountants to stash 5% of her income in an account that's available if she needs it. "My mother always told me, 'That's your getaway money.' "
To control her credit-card debt, Koplitz once resorted to freezing her cards in a bowl of water. Now she carries just two cards -- one of them is American Express, which she must pay off each month -- and keeps the rest with her accountants. "If I want to use one, they ask me if I really want to spend the money."
To keep down entertainment costs, she takes guests out to breakfast rather than dinner "because it's cheaper and you get more." And when you're out with a group, never pay with a credit card and collect cash from everyone else, she advises. If you do, "you're probably going to come up short, and when you get the credit-card bill the cash will be gone."
Koplitz jots down her actual expenses in a notebook and tallies them at the end of each week to see if they're over or under her estimates. When she comes in under budget, she treats herself to a reward.
Tracking your spending might sound like work, but you don't have to do it forever; even one month is enough. Nor do you have to record every penny. An easy alternative is to use your monthly credit-card and debit-card statements to show where your money goes. Then you can plug the one or two areas where you're leaking cash and probably come up with an extra $20 or more per week in savings.
That's $1,000 a year -- and a grand is real money you can use to pay off debt, save for a car or take a trip to Hawaii. Once you know where your money's going, you're in great shape to take these five steps toward financial independence.
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