Money in Your Twenties
Money in Your Twenties
by Kristen Jacks, Camp Mom
‘Tis the season for graduations of all kinds—high school, college, grad school, you name it! It’s also the time when lucky graduates begin their first real jobs.
Here’s some advice from camp mom and author Kristen Jacks on how to start managing those paychecks right from the start. As a Believer, she also sheds some light on how to instill good habits to make sure there are funds available for tithing and gifts to worthy organizations.
How Can Young Adults Be Charitable When Classic Budgets Don’t Work?
We all want to promote charitable giving. However, as a financial educator and the author of Money in Your Twenties, I cringe when young adults are told to do a budget.
Here’s why: Young people do not learn to manage money well by listing, line by line, every possible expense they might incur. The classic budget is a good way to trigger feelings of being overwhelmed and confused, and a bad way to help young people understand what they can afford based on their income.
This simple formula can help anyone quickly calculate the amount of money they have to save and, ideally, to give.
Step 1 – start with your yearly income
Step 2 – deduct income taxes*
Step 3 – divide by 12 (most bills are monthly)
Step 4 – divide by 3.
The result in Step 4 is used to evenly fund three allowances: rent, all other recurring expenses, and discretionary decisions like saving, having fun, and giving.
Let’s take the example of a college senior with a job offer of $40,000.
Step 1 – Income = $40,000
Step 2 – Deduct $8,000 in taxes – $40,000 – $8,000 = $32,000
Step 3 – $32,000 divided by 12 = $2,667
Step 4 – $2,667 divided by 3 is $889
In four easy steps, a young adult who might feel rich earning $40,000 per year gets a reality check and an important lesson: saving and giving must be intentional. Income of $40,000 means discretionary spending of only $889 per month. Too many frivolous purchases will eliminate all the funds available to save and to give.
For those who want to save a certain amount and support organizations they love, one winning strategy is to use automatic deductions. Funds go directly to where they are intended.
*Taxes are tricky. This post will help Confused About Taxes? – Money In Your Twenties
Kristen Jacks is a financial educator and the author of Money in Your Twenties. She is a popular speaker at libraries in New York and Connecticut. Kristen studied financial planning at Boston University’s Center for Professional Education. She started her career at Kiplinger’s Personal Finance Magazine and later worked at Mutual Funds Magazine. Kristen is a graduate of Duke University. You can get in touch and find more Money in your Twenties resources on her webpage.