Being young and broke is a rite of passage that nearly everybody goes through in their early adulthood. And, although it isn’t pleasant, it is highly instructive and can shape you into a more frugal, more savvy, and even more compassionate person — which will be helpful for yourself and those around you, for the rest of your life. (Plus, often the payoff is the incomparable satisfaction of being able to pay your own rent and bills like a grown-up.) Learning how to navigate money struggles can teach you plenty of useful lessons like the ones below.
Don’t pay too much for rent
Paying too much for rent is a mistake many adults make, not realizing it’s one of the top reasons why people stay broke. There are plenty of ways to scale back and pay less for rent. You’ll learn this through trial and error over time, but here are some tips to get you started.
- Find a roommate: It only makes sense to share your rental costs with other people while you’re still young, single, and adaptable. The internet can be your friend when it comes to finding compatible roommates.
- Move to a cheaper city: If you’re paying too much in rent, consider someplace new! Kansas City, for example, has one of the lowest costs of living and shortest commuting times in the country. And exploring a new culture outside of the one you’ve grown up in is exciting and full of learning opportunities.
- Negotiate your lease: If you’re happy where you are, ask your landlord if they’ll cut you a break if you sign a two-year lease instead of an annual renewal. Less annual turnover saves them money, so they like to lock people in. They may be willing to pass some of the savings to you.
Rent is one of the biggest expenses you’ll face throughout your life. Try to spend no more than 30% of your income on it (including utilities) so you don’t struggle more than you need to.
Know cars ARE NOT a good investment
Cars aren’t cheap, especially when you factor in insurance, maintenance, repairs, and gas on top of the purchase price. And a car is simply a means to an end. It gets you where you need to go, but it’s certainly not the only option for doing so.
While it might be tempting to take your first few “real” paychecks and buy a car based on its features, appearance, and other costly options — stop yourself. Go for practicality and usefulness. Most importantly, don’t spend more than you can afford on a car. Be smart; budget for only what you need and save your money.
Remember, autos depreciate quickly and, over time, heavily lose their value. Don’t waste your time or cash on an expensive car while you’re in your 20s. There will always be time for this later in life, after you’re financially stable, if it’s something you still want.
Understand property IS a good investment
Unlike cars, real estate property typically increases in value over time. As a property owner, you could build equity and stabilize your future because you purchased assets that become worth more down the road.
But be sure to go into property ownership with your eyes wide open. Understand the terms and implications of principal, interest, interest rates, real estate taxes, and home insurance. And don’t buy more house than you need, unless you’re investing in a rental property. (This is an exception because you’d be actively making money on your investment rather than living in excess space you don’t need.)
Read the fine print
Serious, read the fine print. Always! Most people are used to carelessly clicking through clickwrap agreements so they can quickly move on. But when it comes to money matters, always read the details before clicking “I accept,” “OK,” or “I agree” — and definitely before signing your name to anything. Never rush through. You never know what kind of trap you could be walking into — and how much money it could ultimately cost you — unless you read the terms of an agreement carefully.
Learn how to pay taxes
In earlier decades, our parents and grandparents had to do their taxes using paper, pen, and handheld calculator, along with flipping through convoluted tax booklets to figure out how to pay Uncle Sam every year. We have it so much easier. The hardest challenge taxpayers today face is remembering this important responsibility and making sure taxes are filed on time — it’s important to avoid incurring penalties and interest charges.
We’re even lucky enough to have online tax calculators we can use to determine if we’re having the right amount of taxes deducted from our paychecks. If not, with a quick recalculation, we can learn what adjustments need to be made. Try to have as much deducted as you can stand; it’s a lot better to get a refund than a bill than have to pay every spring.
Don’t relax during economic booms
Currently, the American unemployment rate is at the lowest it’s been since 1969. While it’s great for us now as we start our careers because we have lots of options, older generations know from experience that the bottom could drop at any time. Don’t relax during the good times. The recent recession was a perfect example of that.
Losing a job early in your career feels awful. However, it’s also an important — and powerful — reminder that it’s always a smart financial strategy to continuously plan and save for the future. Don’t assume that paychecks will always be there. Live beneath your means. Seriously. At some point, unemployment rates will rise again and you might find yourself struggling to find a new position.
Know the difference between wants and needs
Our generation loves its Starbucks and Paneras, but these extras get expensive. Being broke makes one realize how ridiculous it is to spend $6 on a latte and eat out all the time. We’re so used to swiping our debit cards we don’t realize that one $6 latte a day adds up to about $180 a month.
Think about the other things you can do with that amount of cash! We’re talking about paying major bills with that money. Consider all the ways you spend cash that you don’t have to — and then start making your own coffee, learning to cook (explore global cuisines!), and, ultimately, saving money daily.
Being broke is no fun, but it’s common in your 20s. And it’s a great way to get motivated and learn how not to be cash-strapped down the road. Having to count every penny makes you realize all the ways money can just slip through your fingers if you get complacent and lazy. However, by keeping careful track of how your money flows, you’ll learn how to position yourself for a stronger financial future.
Molly Barnes is a Digital Nomad Extraordinaire living in a rig, working remotely, and exploring different cities across the United States. She’s a freelance writer, a vegan, and a bit of a coffee snob. Learn more about Molly and Jacob on Digital Nomad Life.