Skipping a cup of coffee doesn't help your budget much.
In the process of working, I often receive questions from young people, about how they must manage their finances to survive in the price storm, when any amount is necessary and cannot be cut.
I asked: So what have you been doing recently? Most of you answer: I can only reduce coffee, reduce milk tea, reduce drinking.
The first thing I want to say is that when housing, food, travel and many essential costs increase, the financial problem for young people is no longer simply "reduce a cup of coffee". More importantly, know what living standards you are truly able to afford and always keep a buffer before thinking about investing.
Many financial advices for young people start with familiar sentences: Limit eating out, reduce milk tea, do not buy clothes based on inspiration, save 20% of income and start investing as soon as possible.
I think these advices are not wrong.
But in times of high living costs, they may overlook a more important issue: Many young people do not spend too much money, but are living too close to their income limits.
A newcomer receiving 10 million VND per month, paying 4 million VND for rent, 2.5 million VND for food, plus electricity, water, gasoline, telephone and other compulsory expenses, may only have more than 1 million VND left to manage. In that situation, asking them to save 20% of their income each month is sometimes unrealistic.
Divide spending into three tiers
The first thing to do is not to force spending down to the lowest level, but to answer a question: How much does my current living standard really cost?
Many people know how much they earn but do not know exactly how much they need to maintain their life for a month. Therefore, money is often spent based on the feeling: The beginning of the month is quite comfortable, the end of the month starts to shrink.
Young people should do the simplest way, which is to divide spending into three tiers:
The first level is mandatory items: Housing, basic food, travel, education, electricity and water, medicine and fixed financial obligations.
The second level is the items that make life more comfortable but can be adjusted: Eating out, coffee, shopping, entertainment, travel.
The third level is savings and investment.
But I think, the order of cash flow should be designed differently: After ensuring essential costs, it is necessary to keep a provision before expanding consumption or investment. This is a point that many young people easily overlook.
A person with 20 million VND in their account does not mean they have 20 million VND to invest if next month they still have to pay rent, tuition fees or due debts.
Financial buffers must first of all help young people with minor shocks: losing their jobs for a few weeks, car breakdowns, having to return to their hometown unexpectedly, or incurring medical examination costs. Without this buffer, just one incident can cause them to borrow money, use credit cards, or sell investments at a disadvantageous time. Therefore, for young people, financial resilience is no less important than profitability.
Also, financial management should not be turned into a battle with all small joys
A cup of coffee worth tens of thousands of dong is sometimes not a problem. It is necessary to look at the big items first: Renting an apartment too much, buying a phone in installments, consumer loans, frequently ordering food, owning a car beyond their ability to pay or maintaining too many monthly registered services.
Saving a few hundred thousand VND of coffee money while having to pay several million VND each month for a wrong financial decision does not solve the root of the problem.
Young people also do not necessarily have to mechanically apply a fixed money division formula. People living with their parents, student renters and newcomers in big cities have completely different cost structures.
A more practical principle that young people should apply is: Know your minimum living cost, set a limit to your living standard, create a buffer before investing in the real amount of money that is not needed. Investing early is an advantage. But investing is not the first step in financial management.
In a price storm, the most important skill is not to prove how hard you can live. It is to know clearly how much money you have, how much your life really costs and how much space there is if one day your income suddenly decreases.
Financial freedom does not start from earning a lot or investing early. It starts from not letting your life always stand close to the edge of the money you earn each month.
