Growing up and living in Australia, my experiences with finance probably differ from yours. (You might not be American, but if you’re reading this, you probably are.) Is a 401k a computer virus? Are long-term, unpaid internships actually legal? Is that really the weather in New York today? (Oh, it’s in Fahrenheit. My bad.) You might not spend a colorful Christmas day at the beach with your mum, but there is one thing that frustrates both of us: we aren’t saving fast enough!
Compound interest — in other words, panic, but don’t panic
I am only 18, and it feels like the financial advice world is yelling at me: “Your money should be working for you now!” My response: “Arghh calm down I’m still working for my money.” Yes, you should be doing both. You should be saving in a high-interest, no-fee account. You should be investing now, even if it seems hopeless. You get it. What you put away now has the power of time on its side. So, if time is so powerful why don’t we speak and think in it?
Start spending and saving in hours, not dollars
The absolute easiest way to stop instinctive and destructive spending habits and rapidly grow your savings is to start budgeting in hours. This is especially important for young people. You are living in an economy where you are offered and encouraged to buy the same products and services as people on hourly rates sometimes two or three times your own.
TFD frequently touches upon the dangers of spending on things that make you feel more mature. But the reality is, you must live within your means to save. No matter how many jobs and side hustles you get, there are only so many hours in a week. You are likely studying and/or working in a low-paying entry-level position, and there is a point you reach, where at least in the short term, you must accept that this is the amount of money you have coming in. However often you speak or think about how much money you earn vs how much money you spend, you translate this into how many hours you work vs how many hours you spend.
How do I do this?
Sound complicated? It’s not. It’s really simple.
If I can regularly convert from the standard system to the metric system, you can absolutely divide your purchases by your hourly rate to show how many hours you must work to afford them. That is literally all it is.
Every time you spend any money, you calculate how many hours it took you to earn that money, and then factor that into your decision-making. You can even take this a step further to really motivate yourself and count the number of tasks it took to earn that money. If you are a barista, how many coffees do you need to make to afford that? A little bit of basic maths, and you’ve got yourself the most robust protection from emotional spending.
But I hate maths (sorry, math), and this isn’t realistic for me
If this is still too difficult, imagine you open up your pay one day, and in it is a receipt for all the stuff you usually buy — except your employer has already purchased it for you. Are you freaking out? Well, that’s exactly what mindless spending looks like. We all prefer getting paid and gifted (take notes, grandma) in cash. So why do we then go and exchange it for stuff and experiences we end up regretting?
Do you remember the first time you bought something with your own money? Did you feel powerful and in control? You probably felt a little less confident when this habit then started showing up in credit card debt and living paycheck to paycheck. You aren’t a kid anymore, so whenever you go to purchase anything, consider how you would feel if it was purchased for you. Do you need to spend this money, or do you just want the freedom? If it’s the freedom, make sure that you save that money so that one day you can be truly free and prosperous.
Time is on your side, so get to know it better.
Amy is a young Australian, currently spending her gap year working in hospitality and overthinking her financial future.
Image via Unsplash