How to Start Managing Your Finances Like an Adult

Published in

Grow Investing

5 min readJan 27, 2017

By Nicole Schlichting

Ooooh, money management…what a spooky, uncomfortable phrase. Unfortunately, financial responsibility is a necessary evil of adulthood — so integral to life, in fact, that we are actually introduced to it at quite a young age; from the moment we first receive allowance from our parents or birthday money from grandma, we begin to create our own personal spending habits that can be quite difficult to break a decade down the road when, all of a sudden, we’re grown-ups. For many, the idea of handling one’s own finances can be incredibly stressful, particularly because you are dealing with a much more complex income than you were as a twelve year old, plus the responsibilities, bills, debts, and various other drawbacks of adulthood.

Yup, being a grown-up is terrifying. So…where do I even start? Help.

The New Golden Ratio: 50/20/30

If the idea of jumping headfirst into a complicated financial management scheme seems a little overwhelming to you, you’re not alone. Luckily, there is a simple and flexible way for young adults to begin creating good monetary habits that will serve as a foundation for their fiscal futures: it’s called the 50/20/30 rule! The idea is to allocate your income into three separate parts — needs, savings, and wants — and use the money accordingly. More of a mindset than anything, this budgeting structure will hopefully help you organize your finances more easily. Here goes:

50% of Your Income — Needs:

The biggest portion of your monthly income should go to the necessities, a.k.a., things you literally can’t live without (and no, your daily Pumpkin Spice Latte does not count). For most people, this category will be comprised of housing, food, transportation, and utilities — the way you divide your income up between these four essentials, however, depends entirely on your personal situation. Maybe you live in an expensive apartment but bike to work, or maybe you live in a less pricey place but have an expensive commute. It doesn’t really matter as long as you are able to find a good balance and are able to stay under 50% — if you can’t, consider finding alternatives (a cheaper apartment, walking to work, mooching dinner off mom more often, etc.) to help you reach that financial sweet spot.

20% of Your Income — Savings:

Ah, the classic concept of putting an entire fifth of your monthly income in an untouchable savings account to save for a rainy — wait WHAT?! Before you freak out, listen carefully, because now comes the most valuable financial advice you may ever receive: Once you’ve settled your ‘necessary’ expenses, immediately turn your attention to…your savings! Far too few of us realize the potentially life-altering benefits to be had from stowing away 20% of our monthly paychecks before even thinking about our immediate ‘wants’ or the ‘nice-to-haves’.

“Plan for the future because that’s where you are going to spend the rest of your life.” -Mark Twain

We guarantee that this forward-level thinking will feel unnatural — because giving in to one’s immediate desires comes instinctively to humans — but trust us when we say that this makes 100% financial sense, plus (a lot of) interest! The quicker and more diligently you save, the sooner you’ll reach financial stability, meaning the ability to someday pay off your debts, afford a down payment on a house, pay for your kids’ college educations, or retire comfortably.

30% of Your Income — Wants:

*enter Pumpkin Spice Latte, stage left.* This final section (basically your monthly spending money) should ideally consist of what’s left over after you’ve paid your bills and tucked away your savings. More so than either of the other two sections, ‘wants’ depends entirely on you and what you like to spend your money on; for some, it’s dinner out with friends, for others, it’s a morning coffee, weekend vacations, Friday movie night, trip to the mall, etc...the list goes on. Other monthly commodities fall under this list as well, such as cell phone plans, gym memberships, Netflix subscriptions, or other such costs that we might think of as ‘needs’ but are actually secondary expenses.

Learning to say no to the constant barrage of opportunities to spend money is an incredibly essential step to reaching financial security, and curbing your ‘wants’ budget to 30% of your monthly income is the fastest way for you to attain that goal.

Easy Extra Credit

There is, in fact, one final thing to consider when you decide to start being an adult with your finances — an extra option you have to protect and increase your future savings. You guessed it: investing! Don’t worry, we’re not talking about the crazy kind where you buy and trade stocks like a madman and are constantly obsessing over the fluctuating market; while that type of investing does have the potential to make you a quick buck or two, it is also incredibly high-risk and won’t necessarily lead to a profit in the end.

What we’re talking about is responsible, long term investing — the kind that effectively acts as the water, sunlight, and soil for the small, meager seed that is your current savings. With a good deal of patience and the right amount of time (like, long time — think 30+ years), those small and secure investments will grow and blossom into a beautiful, luscious money flower, leaving you both financially stable and thankful that you began saving and investing in your 20’s.