It’s never too early to start being sensible with your finances. I am not the best example of this. As soon as I turned 18, I took out credit cards and a personal loan, racking up thousands upon thousands of debt dollars like there was no tomorrow. The economy was strong back then and the banks had no issues with lending out say, $10,000.00 to an 18 year old who is earning $32,000.00 a year. This behaviour continued well into my early twenties. It didn’t matter that how much more I earned as I progressed in different roles, because it was all feeding my credit cards.

Even at my previous job, where I was earning a reasonable amount of money, I was living from payday to payday, sometimes shortsightedly leaving myself with under $100 to last a few weeks. I was a professional. I had an office. I scrutinised cash flow statements and P&Ls all the time, yet there I was, 22 years old, 5 years of full time employment under my belt having sacrificed uni life and free time, yet nothing to show for it. The turning point was when I took a new job with my current employer. There was a significant pay increase and suddenly I had the means and mindset to right my financial wrongs. I should note however, you are always better off starting NOW. Do not wait until some future event. I was silly to wait that long, however I also feel incredible relieved that I saw the light. I’m now 25 years old and have saved the equivalent of 5.5 months of my current income.

I have personally found these tips most effective.

Keep up with the (financially sensible) Joneses
It started, quite innocently, with the forums. I followed discussions on forums such as ‘Help me stop spending!’ where everyday people shared ideas. This branched out to following blogs such as Get Rich Slowly, which provided a wealth of bite sized and relevant pointers. Reading articles and posts from people who are trying to be financially sensible as well gives me the sense that I’m not alone. I swapped from the norm of consumerism and credit card spending to a new perspective.

According to the ING Direct Financial Well-being Index, Gen Y’s had a median bank balance of $14,377 in the first quarter of 2013. Victorians were the best at managing their finances with an average savings level of $24,971 per household. ‘WHAT? Everybody is secretly saving without me! I need to get my act together!’ For reasons partly bench-marking related and partly shamelessly nosy, knowing how I’m faring compared to the average person keeps me motivated.

Adopt a compliance framework for spending
I’m pretty sure some personal finance guru coined this, but I’m sorry, so many people have written about this I’m not sure where to trace it back to. This formula is kicking around on finance blogs in some form or another, and it has helped me tremendously.  The 50%, 30% and 20% budget.  Being that you should spend no more than 50% of your pay packet on Needs, 30% on Wants and at least 20% on Savings. My budget is set up in an excel spreadsheet and the regular expenses are listed under these categories.  I interpret Needs as being food, transport, shelter and contractual obligations.  Wants are discretionary spending that you I could live without and they would not drastically affect my ability to live life, such as dining out.

As I add expenses in to each category, a simple formula and some conditional formatting flags to me when I’m about to break this rule. Better still, it flags to me when I’m exceeding the targets. This drives me to firstly eradicate unnecessary expenses such as a huge phone plan in order bring the percentage in the Needs category down and secondly to avoid making commitments which will push the figure back up. At the moment, my budget is calibrated to 28% on needs, 27% on wants and 45% on savings. These categories are broad enough to monitor. I don’t have the time or patience to track every single purchase I make into categories, but this works for some.  I also list out upcoming one-off purchases such as gifts, subscriptions or a new laptop in my budget so they are front of mind.

Protect yourself…from yourself. 
I know that I have very little willpower. If there is money in my bank account, I have to start plotting of ways to make it disappear. These plots to do away with that positive bank balance manifest as well-intentioned notions that I absolutely crucially need to buy this or that, I just hadn’t thought of it until now! This was a very troublesome weakness to have when I was paid monthly. Ugh. Monthly pay. Even now, I shudder at the thought. How did I overcome this? Spend as much money as possible on payday. Yep, that’s right. I arranged so that all of my recurring expenses such as rent and utility bills fell as soon as possible after my payday. I pre-paid my public transport for the whole month. I sent away my savings to an online account that didn’t have a debit card attached. I filled the fridge. That way, I had already committed myself to the Needs and Savings sections of my spreadsheet, effectively mitigating any major damage that future me could inflict and ensuring I could survive for the rest of the month. I now try to pre-pay everything.  For example, although our car insurance payments are monthly, I opt to pay my portion for the whole year so I don’t have to worry about it or include it on my recurring payments list. It’s probably not the most optimal use of money, but it works for me.

Stagger your goals
It’s so satisfying to hit a personal goal, so why not make them easier to hit? It’s not cheating, at least I will continue to tell myself that. My goals in order of priority were to pay off one credit card and close it, then the next, then a personal loan.  The next phase was to save $500, then a month’s wage just in case I wasn’t able to work (Did I mention I’m a natural worrier? So this prospect was a great motivator for me).  Then six month’s wage, you know, just in case I wanted to indulge my quarter life crisis and spend a few months being a free spirited non-yuppie.  I have not completely ruled this out by the way. Anyway, a graph which is linked to my budget tracks the amounts I have in various online savings accounts against savings goals and for some reason, probably on a psychological or just plain nerdy-spreadsheet-loving level, I find it really keeps me on track.

Banish those credit cards and personal loans  
Some people swear by keeping credit cards to take advantage of reward programs. As you have probably deduced from the above paragraph, I am definitely not one of those people. What’s easier than beating that temptation to flex the plastic? Not having that temptation at all. It was just too tough for me all these years ago to dig myself out of that trap of believing that the credit was my money. I used my pay to pay off my credit card, then I spent it again, like I had some entitlement to it. It really is such a relief to be spending my own money all the time, and not having some time limit in the back of my mind about when I’ll start being penalised for that purchase.

You would not believe how elated I was when I sent my 19 year old sister Dave Ramsey’s book ‘Total Money Makeover’ and she texted me ‘Halfway into chapter 4 and have cancelled my credit card!’.  Seriously, I did a jig. Not having to worry about sign up fees, monthly fees, interest, closing fees…that sounds pretty good to me.

And finally…living within your means does not mean depriving yourself 
At the end of the day, how boring and miserable would life be if we didn’t let loose once in a while. What’s the point of those long hours if you never allow yourself a fun night out once in a while. Life’s short. As long as I’m living within my means, I will gladly spend every last cent of that allocated discretionary income. This is probably why I don’t see being financially sensible as a burden or a hindrance in any way.

That Career Girl