I don't know how money works!

[Capital]

I’m 25 and feel like I don’t know much about how money or investments work. I’ve been working in sales for a couple of years and I’m good at it—one of the top agents at my company. While I’ve been making a decent amount of money, I have little to no savings. I tend to spend my commission as soon as I get it, and I don’t want to continue living like this. Where should I start to learn more about managing money and investing?

[LastThursday]

I can't advise you on investments. But the rest I can.

In terms of saving it's very simple. If you spend more than you earn you will go into debt, and if you spend less than you earn you will save money.

The difficult part is that what you spend is spread out into many different things, so it's hard to keep track of it all. But what you spend can be divided into two parts, fixed costs and leisure.

The fixed costs are things like paying rent, paying for food and utilities, paying for a car, clothing and so on. These are all things you have to spend on to stay alive. 

The leisure part is everything else, like holidays, partying, restaurants, streaming services, gambling, subscriptions, investments etc. 

If your fixed costs are less than what you earn, then you can save. If they are more than what you earn then either you need to reduce your fixed costs: move somewhere cheaper, sell the car, buy cheaper clothing. Or, you need to find a job that pays more money.

Sit down, and write out your fixed costs each month, and see how much that comes to. Include all regular payments that go out.

If your fixed costs are less than you earn, then I would advise putting aside a fixed amount each month into a separate (high interest) savings account. This should be set up so that it's an automatic payment.  How much you put in really depends, as it will impact your leisure money. But even a nominal amount of one or two hundred a month will allow you to save a reasonable amount over a year.

If you set up a savings account, then you should not spend that money on leisure. Only use the money for absolute emergencies or for big essential purchases, say a car. Basically use your savings instead of getting out a loan from the bank. You should only be dipping into your savings less than once a year.

 

 

[ICURBlessings]

A trick about saving money... I think of the money I put in a saving account every month the same as the money I pay my bills and my mortgage. I mean in the sense of 'obligation' . I oblige myself to pay my bills, always have - but I could never save money until I decided to treat my saving account the same as all the other places my money goes every month. I just have to put "something" every month in my saving account - just like if it was a debt I am paying off.