We’ve all been there. Maybe you’re there right now.
I was 23. I was unemployed, and my savings account was dwindling, fast. My main hobbies included sleeping in until 11:00am and binge-watching Netflix shows. Every day. These were my hobbies for two primary reasons: they made me forget the deplorable state of my life/finances, and it was free.
Don’t get me wrong, I was applying for jobs all the time. I would go through phases where I felt supremely motivated (out of either guilt, depression, or desperation) and I’d apply to dozens of jobs every day; I would also go through phases of utter discouragement and I’d watch an entire season of House of Cards in 12 hours. Then back to job-hunting.
My lowest point was when I applied to be a sign-twirler on the corner. The job description said it paid $8.00 an hour. They never got back to me.
I called my mom and said that I didn’t think I’d be able to pay rent for the month. Unfortunately, she said there wasn’t any money she could give me – what little money my parents had went to my younger brother’s college tuition and groceries. I had a plan to propose to my girlfriend, but I felt crippling shame that I couldn’t even buy half a tank of gas, let alone a ring for her – I had no job and no prospects. How could I ask her parents for their daughter’s hand? The shame a guy feels when he can’t provide for himself, let alone a family, is indescribable.
I’m telling you this story to let you know that I’ve been there.
I’ve also made it through.
If you or someone you know is going through something like this, I hope this helps.
1. Put $1,000 dollars into a bank account
From this point on, I’m going to assume that you have a job or some kind of income stream. Finding a job is an entirely different topic that I won’t be talking about today.
The main point: this money is never to be spent unless it’s an emergency. (The more serious you define “emergency,” the better).
For most people working even a minimum wage job, saving $1,000 dollars won’t take longer than a couple months. This isn’t easy, just like saying “eat less and exercise” isn’t easy. But it’s possible. If you cut out all junk food and started eating only healthy food and went to the gym 3 times a week, you’d probably see an extraordinary change in 2 or 3 months. The same principle applies to finances.
I would recommend using the envelope system to do this.
Once you have $1,000 dollar saved, many people invariably begin to feel like a knight whose rusty armor and sword were cleaned up. You’ll feel sharper. Cleaner. More confident in yourself and your decisions.
That leads us to step 2.
2. Pay off debts Using the Snowball Effect
My student loans were divided into 4 major chunks: $1,000 $3,000 $4,000, and $7,000.
It was slightly less depressing than looking at the total sum, $15,000.
You’ve probably got loans. StuffGradsLike is all about helping people to pay off loans so they can do and spend money on what they love. I used the snowball effect. You should, too.
Essentially, the snowball effect is just what you’d expect – start small, build momentum, and over time, get bigger and bigger. That’s what this system is.
Start paying off your smallest loan, as SOON as possible.
“But Anthony! My BIGGEST loan has the huge interest rate it’s charging me. I should pay off that one first, so save the most money, right? Right. OK, thanks! Bye!”
Wrong. The snowball effect isn’t about financial logic, it’s about something exponentially more important – your behavior.
Your behavior dictates your finances, not the other way around. The snowball effect is about improving your behavior, so that by the end of this, you’ll be financially responsible and debt-free. Here’s how it works:
The snowball effect means you tackle your smallest debt. Maybe this is your credit card. Maybe it’s buying lunch for your coworker. Whatever it is, pay it off, as fast as you can. Like we said, you could probably save about $1,000 in a couple months if you used gazelle-intensity – the same principle can be used here.
Why? Because once you pay off a small debt, you’ve built momentum for yourself. That’s the key.
Onto the next one. Pay off your slightly bigger debt (maybe it’s substantially bigger). Same thing – gazelle intensity. Urgency. Do it now.
That’s what I did. Eventually, every paycheck became a punch in the gut of the thing holding me down – my debt. Every week, I found myself more feeling better about myself. You will, too.
That’s the ultra-simplified structure of paying off debt, which is good enough for now.
3. Save 3-6 months of expenses
This should be the end goal of your finances, for now.
Investing, IRA’s, stocks, anything fancy – you need to take care of these 3 steps first. You need to secure your money before you can maneuver it.
Saving up 3-6 months of expenses will take a long time. Years, possibly. That’s OK. Like I said, it’s the end goal, for now. This will accomplish several important things: your 20’s are a time of learning and making mistakes – you will learn and make many mistakes on this route.
Once you successfully save up this money, you’ll be like the Karate Kid – you’ll be able to take on just about any financial obstacle that could come up.
Most importantly, you will be set up and secure to do just about anything you want. Get fired? No problem, I have more than enough in the meantime with no job. Want to travel? Great, you could afford to backpack across all of Europe with that money. Or, just do nothing and sit on it – you’ll be monumentally less stressed about work, jobs, and financial security.