Managing Your Finances in Your 20s and 30s

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At CommonBond, we believe the people who are successful with their finances are the ones who dedicate time and energy to getting the financial education that will help them reach their goals. Unfortunately, because most of us don't usually receive this kind of financial education in school, many people, regardless of their degrees/profession, often struggle with managing their finances simply because they don't have a good foundation in personal finance.

That's where we come in. We strive to make financial education accessible to everyone, and as part of this mission, we'll be doing a blog series on the nuts and bolts of managing your money. 

The first post in the series focuses on two foundational elements: goal setting and budgeting. These two critical steps lay the groundwork for the foundational decisions you will make in the future. Every person has different financial goals, so your approach to managing your money should be based on what you want to achieve. Some common goals for people in their late 20s and 30s around the country are:

It's likely that you'll have both short-term and long-term goals. For example, a short-term goal may be planning for a wedding, while a long-term goal is planning for retirement. This requires you to prioritize your goals in order of importance and then determine the length of time you need to save for each of them. Then, you'll need to determine how much to save per month to achieve your goals.

Don't be discouraged if the amount feels overwhelming; knowing what you're striving for and what it might take to get there will enable you to reprioritize your goals and make sure you're focused on the most important ones.

Having clear financial goals is an important first step, but goal-setting in itself is not enough. A budget can be a valuable tool that gives you a framework to prioritize and reach your goals. The sooner you set your goals and create a budget, the more likely you are to save more, borrow wisely and invest for the future.

The 50/30/20 Rule

A great benchmark for budgeting is the 50/30/20 rule. In the simplest terms, 50% of your income should go to your needs, 30% to your wants and 20% to your savings.

Once you set your budget, you'll need to track your progress. You may want to do so using a spreadsheet, a pencil and paper, or an online budgeting tool. These apps keep all of your spending and savings across multiple accounts in one place, automatically categorizing each transaction and organizing your expenses into charts and graphs to help you identify spending trends:

Rachel Graper, a CommonBond member, created a budget so she could launch her business, Ideal Grain Free Granola, full time and pay off her student loans. Her advice? Be honest about your expenses. When starting a new business with significant student loan debt, understand how much cash you can allocate to paying down your student loans and to launching your business. Rachel uses a spreadsheet to keep tabs on her expenses.

"Plan how much money you'll realistically need to reach your goals," she says. "This way, you can truly separate your essentials from your wants instead of starving one to feed the other."

Identifying your financial goals and creating and monitoring your budget are the first two critical steps in setting yourself up for financial success. In addition to helping you ensure you are focused on meeting your short- and long-term goals, taking these steps could help you decrease your stress level because once you put your budget on paper and you're actively tracking your spending, there should be no surprises. You won't have to wonder where the money will come from to achieve your goals, and you'll be well on your way to turning your goals into reality.

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