You might be getting your first job, heading off to uni, planning to move out of home and go flatting or heading off on your OE in the next few years.
Being an adult also means learning how to manage your money. As you start to get an income, you need to learn how to make your money work for you – covering your essential bills, saving for the things you want and of course, having fun along the way!
Here are our top tips to help you get started.
You need to know exactly how much money you’ve got each month to work with. Knowing this figure is key to managing your money.
You might have a couple of part-time jobs, a student allowance or a side hustle. Having multiple income streams is a great idea but it can be difficult to work out exactly how much money you have each month.
If your income is variable, the easiest way to work out your monthly income is to add up the income you’ve received over the last few months. Then divide that total by the number of months to determine your average monthly income.
Then you can start to make a plan with your available cash.
Essentially, a budget gives you an overview of your income (how much money comes in) minus your expenses (how much money goes out).
Put together a list of all your expenses coming your way for the month. Things to include could be:
You should also include an amount in your budget for savings. It’s a good habit to get into now. Think of it as paying your future-self first.
One good rule of thumb to use is Elizabeth Warren’s 50/30/20 split. She developed this concept as a simple way to set out your budget. It works like this:
You contribute approximately
Giving yourself a figure to work with will help in creating your budget and understanding how much you need to have set aside each month for the essential stuff. If it looks like your expenses are more than your income, you’ll need to decide what’s important for you to cover and what you can do without for now.
Don’t despair though! It won’t always be like this. As your income increases, you’ll be able to do and enjoy more things. The 50/30/20 rule is easy to apply at any stage of your life.
Once you’ve got your budget underway, it’s a good idea to stash some cash away for emergencies. Ideally, your emergency stash would be enough to cover your essential expenses for a month or so. Or if something unexpected happens – like your car breaks down.
The easiest way to start your stash is to include an amount to start saving in your budget. Then, simply transfer that amount to a savings account every time you get paid. You might find it easier to make sure that the money is with a different bank to your main one. If you make it harder for yourself to access your emergency stash, it reduces the temptation to dip into it for non-emergency things. Like shoes. Or beer.
Learning how to manage your money also includes spending it on the things you want. It could be buying new kicks, road trips with your besties, upgrading your phone or going to gigs with your mates.
But if you’re constantly finding yourself skint and borrowing money off your mates to make it through to payday, then you’re not really managing your money.
Spending wisely means giving yourself permission to enjoy the things you want – if you take care of the essentials first. This is where the 50/30/20 rule is helpful. You know exactly how much you’ve got to spend on the fun stuff, so you don’t feel like you’re missing out.
Also, it makes it super easy to save up for the things you really want – like a new phone – because you simply add that in your budget.
You might find that banks start offering you ways to help bridge any temporary gaps between paydays – an overdraft on your bank account, or even a credit card.
Think carefully before you start using credit to cover yourself until payday. Credit cards are great for emergency or unexpected costs (eg your car breaking down), but not so great for buying brunch every Sunday...!
Overdrafts and credit card debt can quickly spiral out of control, and you might find that you get further and further behind as you try to keep up with the repayments.
You’ve probably heard it before: “If only I’d started saving for my future when I was your age!”
It’s never too early to start saving for your future. Getting your KiwiSaver sorted now means you’ll have a much brighter financial future. It could mean that buying your first home is much easier and quicker, as you will have saved up a sizeable deposit because you started saving sooner. The key is to get started now.
Contributing just 3% of your income might seem like a big financial commitment right now, but you’ll find that it will really pay off for you in 8-10 years’ time.
The other trick to KiwiSaver: make sure you’re in the right fund for you. If you’re not planning on making a major withdrawal from your KiwiSaver account in the next 10 years or so, then a growth fund could be a good choice for you. It means your money is mostly invested in growth assets, and you’ll enjoy the benefit of those returns over a longer time period.
Want to know more about KiwiSaver and how it works? Check out our KiwiSaver 101 video for more info.
Growing up is all about making decisions. You learn through the good (and bad!) choices you make. It’s all part of becoming a fully functioning adult.
Whatever’s on your horizon, learning the basics of good money management will help you feel more in control of your future.