Becoming a professional basketball player is the first job I've ever had. I was fortunate enough growing up that my parents let me focus on school and basketball. While I was in college, we only had 6 weeks off during the summer and my parents understood the difficulty I would have in finding a job or internship for such a short period of time so they let me focus on training. So, at 22 years old when I received my first paycheck for working, I was beyond excited!
In a sense, I was kind of at a disadvantage. I was fortunate to get a full scholarship and with that came the meal plan, housing, clothing check, cost of attendance as well as per diem so I never really had to learn to budget or save money even though I knew this is what my parents tried to instill in me. I was a kid and I thought I'll just learn how to do it later and I just spent without really thinking about it. I hope that doesn't come off as me sounding entitled but I recognize that I am definitely blessed to have been in that situation. Knowing what I know now, I could have saved a lot more and been smarter with the money they gave us. As I think about every cost of attendance check I received, if I would have saved a portion of each of those over a four-year period, I could have left school with around $5,000 (if not more).
That being said I knew my parents had supported me up to this point in my life but once I got my first check I was on my own! It was now on me to practice what they were preaching and save, invest, and be smart with my money. I've learned how to track my spending, make a budget, and learn to live off less than what I earn so I don't live paycheck to paycheck. I know if I instill these good habits now, it will only get easier as my salary increases year after year. In this post, I want to talk about 3 ways that I manage my money and some of the tools/apps that make that happen.
Before I could use these tools, I first had to see how much I was spending. For the first month I was living overseas I just lived normally and bought things as needed but I made sure I wrote down every purchase in the notes of my phone and what it was spent on. At the end of that first month I made an excel spreadsheet and saw how much I spent and where my money was going, and I came up with 7 categories that I was spending on. Surprise, the area where I spent the most on was food!
Going into the next month I had an idea of how much I was spending and also saw areas that I could cut back on and try to be more frugal. After receiving my first check, the first thing I did was take 10% out for tithes. The next thing I did was take 50% of my salary after tithes and that became the money I would spend for the month. I wanted to forget that I even had that extra money and that would force me to start building up savings from the start. One of my boys that's been playing overseas for a few years told me that your first year you should just try and save as much as you can especially since you don't have a lot of expenses. Since one of my goals is to do just that, I wanted to push my savings rate as high as I can. This leads me to the first app that I use to keep track of my money:
1. YNAB (You Need A Budget)
YNAB is a budget and expense tracker. This is an app that my mom introduced me to and is what she uses to track the spending for our household. She tried to get me to start using it over summer and I didn't really take full advantage of it, but when I got overseas, I knew I needed to keep track of what I was making and spending, so I went all in. I use this app to keep track of what areas I am spending on by giving each dollar a job. The app has categories such as food, gas, clothes, as well as expenses you may have like utility bills, mortgage payments, or other debt. You can also create your own categories which is what I do. The next step is you make your budget and set how much you are going to spend and then give each category a dollar amount. See the example below:
For me, I only have 7 categories that came from going over the data in excel and I came up with my YNAB budget. It's been a great reminder and has kept me accountable with my spending. Even though I could spend more, I had to teach myself to be disciplined. It's formed a habit now that every time I purchase something, right after I go and put it into YNAB and it takes about 20 seconds to do that. See the example below:
2. Robinhood/ Brokerage Account
Because I don't just want to save but also see my money grow, I invest. I want to take advantage of compound interest and I know that the earlier I start, the longer my money has to work for me! I do however keep some of my money as dry powder (cash) to start building up my emergency fund. Last year around October a couple of my friends who were big in investing were talking about this app called Robinhood. Robinhood allows individuals to invest in publicly traded companies and exchange-traded funds listed on U.S. stock exchanges without paying a commission. This was great news to me because I knew how fees can add up and the more money I can keep the better!
They showed me how it worked, and I told myself I was going to go ahead and do it. For whatever reason, maybe fear of trying something I've never done before and actually using my own money with the chance that I could lose it, I never took the leap. Fortunately for me, during that time we were learning in my different finance classes how to value companies and different stocks. We would build models and use different methods like comparable companies analysis and discounted cash flow analysis (DCF) to try and find the intrinsic value of a company which is what the company is actually worth. This way, we could determine if we should buy, sell, or hold the stock based on our analysis.
This was very helpful, and I began researching different stocks on my own to see how I could make money. The downside of this is that it took a lot of time and research, but to me it was fun! Fast-forward to December, my parents and my girlfriend gave me my first investment to buy stocks in Robinhood for Christmas! I currently own 9 stocks and year to date I've gotten a 5% return which is better than the benchmark I use of the S&P 500 which has returned -2.19 % so far. I got the S&P 500 YTD return by taking the adjusted close of (Dec 11, 2018 minus Jan 2, 2018) divided by (Jan 2, 2018) (Yahoo Finance) According to this, that would make me a good stock picker but I'm not foolish enough to think I can outperform the S&P in the long run because the historical rate of return for the S&P 500 is around 10%.
Because I know that it was probably just luck of being a first time investor, I haven't invested in individual stocks since about March but researched how to make a portfolio based on index funds through a brokerage. I was able to set up an account through TD Ameritrade and through research made my own portfolio based mostly of Vanguard Index Funds. Going forward this is what I will use for the majority of my investing because of the low fees. However, I will make sure I do keep some dry powder on the side to make investments in individual stocks if they go on discount. Right now, Apple would be an instance where having some extra cash to invest could be good because their stock is very close to their 52-week low. After reading books about investing, especially about people like Warren Buffett who is a value investor, they talk about the strategy of if you believe that it is a good company and they are going to be around for a long time, investing when they are on discount is great as an investor.
This is an app I started using at the beginning of my senior year of college. Acorns is an app that encourages you to invest your spare change using a system they call "round-ups." Acorns monitors your bank account and automatically invests the change from your daily purchases. For example, if you pay $2.50 for a coffee, they round up your purchase to $3 and takes the $0.50 cents and invest it for you. There are different portfolios to choose from starting at conservative, to aggressive. I look at this as a high-interest savings account.
I'm not using this as my main investment vehicle but as a way where I have the chance to get more interest than having my money in the bank. Because the app is investing my money, I still have the chance to lose it because it follows the stock market. However, because it's not money I'm looking to touch anytime soon I'm okay with it going up and down. Because I am a long term investor and am also very young I have chosen to invest in the aggressive portfolio. I like this app because even though $0.05 or $0.10 cents don't seem like much, over time it really starts to add up!
These are some of the ways that I track and grow my money. Knowing where my money is going and also seeing my money work for me are two important things to me and are putting me on the track towards financial freedom. It has taught me discipline by saving my money and not spending on everything even though I could. I know the lessons I'm learning now will only help as I make more money in the future. I would love to hear some of the ways you monitor your spending habits and keep track of your money in the comment section below!