Managing Finances When You're Adulting In the City
You need to read this if you are young or have moved to a new city for work. Failing to plan is planning to fail. It is not an easy life if you are just starting to find your feet. There is no blanket security around you in your own home. You must look after yourself and manage your home and work simultaneously. As exciting as the new phase in life is, you must have a plan for anything it throws at you. Those could be a variety of moments in life. They could swing from a fun unplanned bike trip to Ladakh to something as serious as medical emergencies.
As you age, you need to be financially mature. If you do not understand the difference between needs and wants, you are in for a financial shock. When young, you focus more on being a spender than a saver. You want good things in life. However, that cannot happen every day. You need to be thrifty if you wish to enjoy your holiday or shopping. Swiping your credit card without thinking about future income could lead to a debt trap. You will find yourself stuck in the circle of not having enough money to go for experiences over materialistic things.
In other situations, does it ever happen that you feel like you're working so hard with your money but just getting nowhere? Or perhaps you think you have been working extremely hard, but there isn't much to show when you look around?
In both situations, you lack financial planning. If you don't plan well, you'll probably feel like you're just going on in circles and never achieving financial freedom. It's time to take some steps if you want to start progressing and live a financially free life.
How can you do that?
Budgeting is the key to financial freedom. We cannot stress the importance of budgeting enough. Draw a line between your wants and needs. The best happens after you start living within a budget regularly; you have more money left to invest in your financial goals.
Follow the famous 50-30-20 rule. It instructs you to divide your cash on hand into three portions. 50% of income is spent on needs, 30% on wants, and 20% on savings and investments. By doing this, you will have different buckets for everything and operate inside each bucket's allowable limits. That will help you develop discipline while ensuring you don't sacrifice your standard of living or your long-term planning.
- Start an Emergency Fund
The primary thing that you must start is to save for a rainy day. We all think of saving but do we save? We pay bills; we go out; we shop but never start saving in an emergency fund. It's not happening because your pay is less; it will be the same even if you are a six-digit earner. It's a matter of habit and not how much you earn. It is wise to save at least 6-8 months of your expenses for emergencies such as a job loss or a health condition.
- Practice Self Control
The sooner you develop the critical life skill of holding off on unnecessary expenses, the sooner you'll maintain your finances as a habit. Wait till you can save to purchase what you need; it will help you avoid using the credit card and eventually paying higher interest every month. Avoid the trap of using a credit card for your purchases.
Credit cards are helpful but only in times of emergency or if you get some discount on a big purchase. Make sure you settle the balance in full when the bill comes. Additionally, avoid accepting every credit offer you are presented with and avoid carrying more cards than you can manage.
- Start Investing
Start small but start, even if you save Rs. 2000 per month but save consistently. Nothing is better than watching your money grow over a period. Consider investing in a good SIP, PPF, ETF, bonds or any other asset. Educate yourself more and more about investment and make an informed decision.
As an adult living in a city, you must be reasonable about your expenses to have enough money when something unexpected arises. To take good care of your finances and achieve your goal of financial freedom, you need to follow the basics. Keep doing what is suitable for you and suits your financial situation, and you will get it right.
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