As a 23-year-old just starting out in the workforce, I’ve had to think long and hard about how I’m using my money. My strategy has been to intentionally give every dollar a purpose so that I can prioritize saving and investing while also allowing myself to spend on things that are important to me.
My current top 5 financial priorities all help me to follow this strategy.
1. Save/invest 60% of my income
When I first started making my budget, I set the goal to save and invest 50% of my income. With the rule of thumb generally being to put 20% of your income towards these goals, I thought this was already a lofty goal.
I’ve been pleasantly surprised these past few months by the fact that I can actually save 60% of my income without living too frugally. This year, my expenses have been about 26% of my income. This is a lower number than what it will eventually stabilize to because I lived at home rent-free for two months in the beginning of the year.
As my income grows, it will be easier to hit this goal especially if I keep my expenses constant.
2. Max out my tax advantaged accounts
Currently, I am $200 away from maxing out my 2021 Roth IRA. I am 1/3 of the way towards maxing out my 401K. I prioritize tax advantaged accounts because they give me more bang for my buck. When I contribute to my Roth IRA, I protect myself from taxes in the future. When I contribute to my 401(k) I don’t have to pay taxes now. This also has the effect of increasing my income now since I save money on taxes.
Even though I am a nerd about finances, I don’t even have a brokerage account, yet. This is because as a new investor focused on long term growth, I am putting all my money towards these advantaged accounts before even worrying about putting money in an account that will be more expensive in the long run.
3. Track my expenses to learn my spending habits
I am an avid expense tracker. Every time a charge hits my credit card or a Venmo request comes through, I make sure to record it in my spreadsheet.
The ultimate goal of tracking my expenses is to learn my spending habits and build an intuitive “budget” that won’t feel restrictive, but will still allow me to reach my goals.
Some things I have learned by tracking my expenses include: I spend almost double the amount on eating out compared to what I expected when I made my budget; I tend to shop when I’m not so busy; my grocery bill is very low and very predictable.
These insights will help me do things like increase my eating out budget to fit my lifestyle; choose wisely how I spend my time so I’m not spending on unnecessary things; continue my grocery habits since they are working for me.
4. Avoid lifestyle creep
One of the things that scares me the most is seeing my expenses slowly raise every month as I let more and more extras and luxuries in. I already have taken on an element of lifestyle creep by allowing myself to eat out so often. However, this is an essential part of my lifestyle since it is a way for me to socialize and explore my exciting new city.
Some things that I count as no-no’s include recurring subscription boxes, Ubers when I can take public transportation, weekday takeout, upgrades or replacements of things I already have that still work.
As much as possible, I am trying to maintain a simple lifestyle even though I can afford much more than that. This will help me put as much money as possible towards my financial goals and stay happy with less.
5. Spend money on experiences, not things
Believe it or not, one of my financial goals is to spend money. Now that the country has opened up this summer, I am valuing experiences more than ever. I find that I am so much happier when my money goes to an experience that makes a memory rather than something that sits collecting dust.
So far this summer, I have taken two lake trips, hosted multiple people in my apartment, and had countless nights of fun, food and laughter. I am giving myself no limits on purchasing plane tickets to visit friends and family. I try to always say “yes” to plans without thinking about what the price entails.
Will this carefree approach be forever? Probably not. I will undoubtedly feel the call of responsibility soon, but after more than a year of isolation, I am paying myself back a little of what I missed.
I look at these five financial priorities as the foundation to my wealth building journey. Although I am only half a year into it, I have already made immense progress and I will continue to follow these going forward in order to make even more progress.