Kasey Trenum purchased six bottles of laundry detergent, four bottles of fabric softener and two boxes of dryer sheets–all for less than $8. “Everybody needs laundry detergent, and that’s one thing that can blow your budget,” she says. Trenum achieved this feat by buying when her favorite brand was on sale rather than when her washing machine was full of clothes but soap-less.
Forced to evaluate her spending when the recession hit, Trenum found that budgeting tactics did more than save her a few cents on tuna cans. They empowered her to take control of her financial future.
As the co-founder of Time2SaveWorkshops.com and author of Couponing For the Rest of Us: The Not-So-Extreme Guide to Saving More, Trenum argues that financial waste comes not just from what we buy, but how. “The main thing is that you have to learn how to shop differently. Most of us wait until we need something, we write it down, we go and buy it, but we have no idea what the price of it is going to be at the grocery store.”
Fellow savings blogger Sami Cone agrees that the way we think about money can have a huge impact on what we spend – especially when we are young. “I used to think I was broke when I was in my twenties, but really I just wasn’t keeping track of the money I had. I wasted a lot of money on clothes and food, things that were consumable, as opposed to saving for experiences.” With this in mind Cone (who is also Trenum’s co-conspirator on Valpak and Savings.com‘s 10,000 Reasons To Save campaign to celebrate National Coupon Month) now teaches her readers how to spend less on necessities so they can put more money toward savings goals and the things they really want.
Rutgers University personal finance professor Barbara O’Neil similarly advocates money awareness. She notes that while most people can tell you what they spend on rent, they have little clue what they shell out for coffee or take-out. “It’s the things that are variable that may not cost very much on a day to day basis, but if you add them up over the course of a month then it can be a lot of money.” Without a plan that includes savings and spending, O’Neil notes, people are likely to dole out more than they should.
When it comes to your finances, knowledge is power and understanding where 20-somethings have gone wrong before is key to making sure you come out ahead.
1. Food. When O’Neil and her students discuss “leaks” food is always at the top of the list. Americans spent an average of $4,229 on food per capita in 2011, according to Economic Research Service calculations, with 51% of that on food consumed at home and 49% on dining out. While most people recognize that restaurant meals are costly, they fail to see the danger of alluring food delivery sites like seamless.com, delivery.com or grubhub.com, let alone how the way they shop for, prepare and store food can impact their bottom line. For young people who cook O’Neil recommends taking storage into account. “People may not be using food up and throwing a lot out, food waste is a big issue particularly if you’re living by yourself.” Invest in Tupperware and eat those leftovers for lunch.
Cone and Trenum point out that groceries, as one of your biggest expenses, also offer huge savings opportunities. “It is a universal thing that everybody has to spend money and it is also a universal thing that everybody can save money on. And not just save a little bit of money,” says Trenum. Through rewards cards, store apps, coupons and knowing key items’ lowest price in the 10 to 12 week sale cycle, Cone and Trenum say you can cut your grocery bill in half.
2. Savings. No, we don’t mean that savings itself is a waste. But saving in the wrong way can be. Millennial focused financial advisor and Young, Broke & Awesome blogger Kristen Euretig warns, don’t “let perfect be the enemy of the good.” She recalls a reader who had just started a new job asking if he should bother contributing to the 401(k) offered by his employer given all the terrible things he had heard about fees. It turns out he confused compound lifetime fund expenses (which can eat up a third or more of your earnings) with annual fees on contributions. When a plan has annual expenses of 1% a year, that means 1% of the assets in your 401(k), not 1% of your total salary.Weigh those expenses against the employer match in your plan; typically, your boss might put 3% of your salary in the plan if you contribute 6%, providing an immediate 50% return on your contribution. Put another way, if you don’t save in the 401(k), you’re leaving 3% extra salary on the table. While Euretig admits the 401(k) system is imperfect, she argues that contributing makes savings more likely than not contributing.
If you are offered a 401(k) through your job, try to put in enough to take full advantage of your employer’s match. But be careful to avoid locking away money you might need in a pinch. Set up an emergency fund for the unexpected. If you can save more than your employer will match, or don’t have a 401(k) option, contribute to a Roth IRA. You won’t get a tax deduction for money you put in a Roth, but in an emergency, or if you decide to go to graduate school, you can take your original funds back without owing income tax or the tax penalty commonly applied to early withdrawals from retirement accounts.
3. Education. During the Great Recession, there were countless headlines about young people “waiting out,” “riding out” or “hiding out” in graduate school. The number of people taking the LSAT for law school entry, for example, rose 20% from October 2008 to October 2009 and the more general GRE saw 13% more test takers that year. Average private law school tuition was $40,585 in 2012 and students graduating with law degrees that year had an average of $125,000 of debt. But for graduates with little or no job experience, additional education hasn’t necessarily made it easier to find well paying jobs or even jobs in their field of study. Only 56.2% of 2012 law school graduates had full time legal job as of March 2013. College financial aid guru Mark Kantrowitz, the founder of finaid.org, suggests that as a general rule,your total student debt (including graduate school) shouldn’t exceed your expected starting salary. So while a master’s degree in communicationprobably isn’t worth the investment, one in information systems could well pay off.
4. Rent. While a record number of 18 to 31 year-olds are now living at home (36% total, including those in dorms), a Pew Research analysis of census data shows that only 18% of Millennials with bachelor’s degrees lived with their parents in 2012. That means recent college grads are likely spending a big share of their salaries on rent. Experts suggest spending no more than 25% to 30% of your pretax income on housing, aiming for the low end if you are renting or have student loans or other debt.
Keeping to this guideline, however, is easier said than done in many big cities. Average rent in the 44 largest metropolitan areas in the U.S. range from around $3,000 in New York (FORBES’ worst city for renters) to around $650 for Tucson Arizona. Keep your share of that down by living with roommates, finding a building that will let you put up a temporary wall so a two bedroom can become a three and never paying brokers fees. In New York, for example, a typical broker asks for anywhere from one month’s rent to a full 15% of annual rent. On an average New York apartment this is like adding between $250 and $450 to the total rent each month for a year. Go it alone or request that your broker only show you no fee buildings, meaning the landlord takes on the fee.
Finally, think beyond the traditional year long lease and peer roommate situation. Search Craigslist for people who are relocating to a new city mid-lease or spending a few months traveling. Eager movers may give you a deal (especially if their move is being subsidized by an employer) but beware of scams. And a roommate doesn’t have to be your age, so cast a wide net. Maybe your mom’s friend’s ex-roommate has a spare room she will rent out cheaply because it would otherwise sit empty. Older people who own big homes may allow a youngster to move in, in exchange for errands and house work.
5. Furniture. Sky-high rent aside, moving into your first apartment is exciting. Euretig explains that many of her clients want to go all out filling their space with the comforts of home that they may have foregone for four years of dorm room decor. She encourages eager 20-somethings to slow down, “It’s about distinguishing between needs and wants.” When she moved into her first place she waited several months to buy a couch. “I survived,” Euretig recalls. “It is not the worst thing in the world to not have a couch for a few months. Obviously you need a bed.” When it comes time to buy, check out stylish sale sites like One Kings Lane or Joss & Main. Local flea markets and estate sales can provide deals as well as a fun weekend activity.
Read more: 8 Things Recent Grads Waste Money On
