Managing Money in a Digital Age: Tips and Tools for Organizing and Tracking Finances for Young Adults

When mastering finances, it's never too early to start. Young adults might believe they don't need to save or manage their money wisely. After all, there is lots of time to learn about saving, investing, and managing money in your teens or early twenties.

However, as a young adult, you will find that wisely managing your finances and saving money puts you in a better position later in life. Your younger years serve as a foundation for developing healthy financial habits that will benefit you in the future. 

Furthermore, if you save early, you amplify the benefits of compound interest. Insofar as growing your net worth, time is on your side. "What's a good way to evaluate your financial health? Knowing your net worth. And thanks to a growing number of wealth tracker apps, that goal has never been easier," according to Young and the Invested.

Momentarily, you might find yourself living paycheck to paycheck. This situation is typical in young adulthood, but you must aim higher and bring yourself to a more advanced level of financial literacy. Even at an early professional stage, whether on your first job, freelancing, graduate school, or learning the ropes as a young entrepreneur, you can develop healthy money habits by learning to organize and track your finances. 

Quick Financial Tracking Tips for Young Adults

Review your account statements

The first thing you must do is make an inventory of all your accounts. Review all accounts—checking and savings accounts, and credit cards. 

By checking your accounts, you can analyze your spending patterns. Without this primary data, you are lost and do not have a basis to build on.

When it comes to spending, track both fixed and variable expenses. What are fixed costs? Those kinds of bills are likely to stay the same from month to month. Examples of fixed expenses are insurance payments, debt payments, rent, and utilities. 

Variable costs, on the other hand, include clothing, food, socializing, and travel. Variable expenses typically provide more room for adjustments.

Create a budget

A budget is a monthly plan that assigns every penny you earn to a specific purpose — saving, spending, or giving. 

After thoroughly reviewing all your accounts, you may already have an idea of your monthly expenses. The next step is to keep track of all your income. This step will familiarize you with where you are on your financial journey and give you an idea of your overall spending capacity.

If you are a young couple sharing living expenses, you may opt to assess your income as combined wages. List all the paychecks each month, including any side hustles you may have. Every dollar counts! 

Income sources outside of a 9-to-5 salary may include:

• Bonuses
• Income from dividends
• Royalties
• Rental income
• Refunds
• Side-hustle money

Young adults with some exposure to stocks, royalties, and other investments, whether on their own or through their families, will have a more extensive list of income sources to track. 

If you have an irregular or variable income, review all the paychecks you've received in recent months. Use the lowest paycheck amount as your budget's planned income.

When creating a budget, learn how to list your expenses. You can assign your costs to five buckets, namely:

• Savings
• Four Walls (food. shelter, utilities, transportation)
• Essentials (child care, debt, insurance)
• Giving (optional)
• Extra expenses (entertainment, dining out, shopping, travel)

 

Subtract your expenses from your income. At the very least, this number should equal zero. If you have leftover money, allocate it towards savings or wealth-building investments. 

Zero-based budgeting is a strategy that ensures that every dollar you earn has a goal. With this method, your income minus expenses must equal zero. It doesn't mean that you don't have money left over in your bank account; it only means that everything you earn is purposeful and that you put all your money to work. 

Use the 50/30/20 rule

Instead of splitting your income into five categories, as stated above, you can use the 50/30/20 rule as a blueprint to create your budget.

In the 50/30/20 rule, you divide your income into three main categories:

Monthly after-tax income

After-tax income is your income after you deduct taxes. Your payroll will have additional deductions like automatic payments, 401(k) contributions, and health insurance. However, you need to subtract taxes first from your gross income. Do it before deducting anything else.

Your needs: half of your income

Under the "needs" category, list the expenses you cannot avoid. Under the "50" part of the 50/30/20 rule, you cover costs such as:

• Food
• Housing
• Insurance
• Minimum loan payments
• Child care
• Basic utilities
• Transportation
• Other expenses that you must pay to allow you to work

Under this formula, you must remember that anything above your minimum loan payments should go into another bucket: debt repayment and savings.

Your wants: 30 percent of your income

What are "wants?” Wants are generally the extra things that are non-essential to your work or daily life. The list may include entertainment, dining out, travel, online subscriptions, or fashionable clothing. 

The definition of needs and wants may vary among individuals. In general, however, essential living items would fall under the "needs" category, and other optional things, as already mentioned, fall under "wants." Under the 50/30/20 rule, wants should take up 30 percent of your income. 

Savings and debt: 20 percent of your income

You save to prepare for the future. Ideally, you should have at least 20 percent of your income devoted to savings, paying down existing debt, and creating a financial buffer for yourself. 

You may use this part of your budget to save for retirement through an individual retirement account or a 401(k), grow an emergency fund, or pay off any debt. The rule in debt repayment is to start with credit cards and other high-interest accounts. 

Use other budgeting methods

If the 50/30/20 rule seems wrong, try other budgeting and tracking methods. 

The 60 percent solution

This method may not be as popular as zero-based budgeting, otherwise known as the 50/30/20 rule, but it is a viable alternative. Moreover, it can be simpler to execute.

With the 60 percent method, you aim to pay for all your needs and wants with 60 percent of your budget. You then allocate the remaining 40 percent to savings. You divide the 40 percent into:

• Long-term savings: 10 percent
• Retirement: 10 percent
• Short-term savings: 10 percent
• Entertainment and leisure: 10 percent

However, you need to remember that if you have accumulated debt, it is advisable to service your debt first before you allocate all 40 percent of the remaining amount to your savings. 

In other words, do not favor savings over debt. After destroying your debt, you can build an emergency fund. After fully funding your emergency fund, you can turn your efforts toward retirement, allocating 15 percent of your budget to various retirement savings instruments. 

The main disadvantage of this method is its inflexibility. It is unable to account for every young adult's circumstances. Therefore, you must select another way if the 60 percent solution cannot fit into your circumstances.

Reverse budgeting

Reverse budgeting turns conventional budgeting priorities on their heads. Instead of prioritizing spending in your allocation and putting the remainder into savings, you set aside money for protection first.

Savings and investment are top priorities in this method. Everything else is secondary. Reverse budgeting can be great if saving money is your number one goal. However, this method may only be for some. 

You cannot use the reverse budgeting method if you must focus on eliminating debt. The danger of this method is getting locked into a strategy that distracts you from your most important financial goal. As a young adult, you must avoid debt before saving money.

Make tracking a regular habit

Choose a regular interval to look at your expenses. It may be daily, weekly, or bimonthly. You need to develop a regular habit of listing your expenses, collecting receipts, and taking note of your lifestyle costs. 

Are you going over budget early in the month? Are you exhausting your resources on non-essential items? A regular budget tracking habit creates awareness and helps discipline your expenses. It allows you to know instinctively what you can or cannot afford. Thus, it may help you prevent impulse buys and put more of your disposable income into savings.

Use digital tools to track your expenses

The most basic way to track your expenses is with pen and paper. Even in the digital age, many use this simple method to track their money. While writing things down is old school, it has an advantage: writing requires an active brain, and writing down your budget with physical instruments ensures you focus on the moment. 

The disadvantage of this method is how easy it is to lose physical records of your budget and expenses. People lose receipts and notes. Moreover, as people spend using digital means like payment apps, it is easy to forget to write down digital payments. Thus, not all records may be reflected on your paper budget. 

Another option for expense tracking is the envelope system. The envelope system focuses on paying for things in cash. You use cash to settle as many of your bills as possible — usually, these expenses you pay in person. 

For everything else, you use checks or debit card payments. At the beginning of the month, you allocate envelopes for each expense category. These may include dining out, groceries, and leisure expenses. 

With this method, you have a visual guideline for your costs because you can see the cash in the envelope running low with each spend. An empty envelope is a signal to stop spending. Your budget controls itself.

One major disadvantage of the envelope system is that today's expenses and bills are increasingly paid digitally. The rise of e-commerce also means that a large chunk of recreational or optional costs, deliveries, and other types of spending occurs online. 

This shift in consumer behavior leaves less cash for budgeting through physical envelopes. Nonetheless, it is an efficient and practical way to track your money and a quick way to learn financial responsibility, especially as a young adult.

However, those generations born in the internet era will appreciate the vast array of digital options available today for organizing and tracking finances. Youths can choose between using spreadsheets and custom budgeting apps to manage and track their money.

Spreadsheets

Spreadsheets have lots of templates and customization options. They can also make tracking finances fun, especially for spreadsheet fanatics who enjoy exploring Excel hacks and watching math formulas work wonders on their screens. 

However, only some people are spreadsheet enthusiasts, and this option is highly preference-driven. Moreover, couples may need to be more savvy with spreadsheets. Therefore, the parties in a marriage or cohabiting relationship may need to be more aligned in disclosing their individual spending. 

Another possible disadvantage of using a spreadsheet is that not everyone brings their computer with them, making it hard to track expenses on the go. 

Finance tracker apps

Budgeting or finance tracker apps are among the most convenient tools for organizing expenses and may work best for mobile-savvy young adults. They will find budget or finance tracker apps ideal for creating budgets on the fly and becoming more in tune with their finances.

Many budgeting apps allow you to link your bank account and reflect expenses. You can also record your spending wherever you are — wherever your phone and budget go. The most significant advantage of budgeting apps is their round-the-clock convenience. 

Moreover, it is possible to customize your budget plans to adjust your savings and spending goals. Such apps can also help you set up funds to help you track your long-term financial goals. You can even sync your account with a partner or spouse. Some apps can automatically stream expenses into your budget. 

Each app comes with its own features. What all budgeting apps have in common, though, is their real-time tracking ability and automation. With today's busy lifestyle, no one has the time to key in each expense. Managing money in a digital age means you need digital tools to optimize your financial habits.

Finance Tracking Tips for Young Entrepreneurs

Many young adults are now venturing into business on their own. All who start businesses in the US, including minors, must file an income tax return if they earn at least $400 from being self-employed. 

Moreover, there is no minimum age to sign tax returns in the US. Teens and young adults can sign their tax returns. Hence, tracking and organizing finances among self-employed young adults is a high priority.

Hire an accountant

You might find accountants pricey as a young adult starting your own business. If you are an accounting graduate or have some work experience in accounting, you can skip hiring an accountant. However, an accountant will help you file taxes and alert you when your debtors aren't paying you on time. Make sure you allocate a budget for proper business accounting. Starting with suitable hires goes a long way in stabilizing your company's finances.

Don’t mix business and personal funds

Tracking every little business expense will help you develop financial awareness. It will also help you periodically assess whether your business is financially healthy. Remember to separate your business expenses from personal expenses. To organize your money better, open a business bank account. Dedicate one credit card exclusively to business expenses.

Keep track of your receipts

As an entrepreneur, you need to track all your receipts. A simple physical container like an envelope or shoebox goes a long way toward keeping and tracking your paper expenses. However, several apps today let you capture your receipts digitally and file them on your phone or other device.

Use free tools like online calendars for recurring expenses

All businesses have recurring expenses. Google Calendar is a simple tool to remind you and your team of upcoming payment obligations or monthly recurring fees. A calendar will help you locate costs and print them whenever necessary.

Use accounting apps and software

Accounting software dramatically increases the efficiency of your business. If you use a digital bank, you may have the option to generate expense categories. Such categories may link to line items on your tax forms. This built-in system helps you with tax preparation.

Some digital banking apps or budgeting software help you create profit-and-loss statements. Take advantage of the rich features in each app to help synchronize and simplify your business finances.

Manage Your Money Intuitively Through Digital Tools

Young adults may find tracking personal finances superfluous as they begin their professional lives, having relatively fewer responsibilities and feeling less pressure to save for the future. However, young adulthood offers advantages for those who want to save and plan for an abundant financial future.

If you want to become financially successful later in life, there is no better time to start than now. Being a young adult helps you take advantage of your time to lay the foundations for long-term investments. It also gives you the most lead time to take risks that pay off down the road. 

In the digital age, all young adults can use finance apps, software, and other digital tools that make financial tracking more convenient. 

You can start a digital bank account, link your expenses to your tax forms, use an app to scan your receipts, create monthly alerts for recurring costs, and set budgets that prevent you from overspending. Everything is possible with your mobile device, so take advantage of these digital tools' convenience and start building financial literacy that will help you understand your money intuitively.

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