In high school and college I was a habitual McDonald’s eater. Now I’ve sworn off fast-food, so when I look back on my diet of those years I’m both amazed and sickened, but back then McDonald’s was a place my friends and I visited on a regular basis. Three McChickens (or McDoubles, depending on how I was feeling that day), add Mac Sauce (ALWAYS add the Mac Sauce), and a large sweet tea, coming to a grand total of $4.27. The good times, man.
There were a couple reasons why we frequented McDonald’s so much. For one, we were from a small(ish) town, and for those under the age of 21, there wasn’t much to do in the town. So McDonald’s became our spot. After Friday night games we would all pile into a buddy’s car and head to McDonald’s, and seemingly half the school would be there. Cliche small town America there, I guess.
Secondly, McDonald’s were cheap, and neither my friends or I had a lot of money if we wanted to eat out. Future sales skills and pitches were developed begging my parents for $20, as that was feeding me and three of my friends easily, with change to spare.
Looking back, I marvel at how simple our lives were then, and how $1 McDoubles, McChickens, and sweet teas could make us so happy. More importantly though, I realize that along with making memories that will last a lifetime, I was also creating my first lessons in personal finance, and setting the stage for how I would manage my money going forward.
Because we frequented McDonald’s so much, our spending there had to be weighed against all other purchases we wanted to make. Did we want to eat McDonald’s that week, or go shopping that weekend? What about taking that girl to the movies on Saturday?
From this dilemma, my friend Fred and I created something that we now call ‘The McDouble Scale.’
‘The McDouble Scale’ is simple. Before any purchase you just had to ask yourself the following question:
Is the purchase I’m about to make worth the corresponding amount of dollars in McDoubles?
From this highly-complex scale (kidding!), I judged the true value of my purchases. Is that $10 shirt from TJ Maxx worth the same as ten McDoubles? More often than not, I deemed it wasn’t, and walked away content with not purchasing anything. Or, when my gas light kicked on in my ‘99 Chevy Malibu (an all-too common occurrence), I was quickly faced with ‘The McDouble Scale’: Is $10 worth of gas more valuable than ten McDoubles? It only takes running out of gas on a cold and snowy day, and having to call your very angry dad to come save you, to quickly learn the answer to that dilemma. In college, ‘The McDouble Scale’ was used to judge the true value of a drink when going out. As in, is this ONE, watered down, $7 drink truly worth seven McDoubles (disclaimer: most likely it’s not).
‘The McDouble Scale’ may sound rather silly and elementary, but looking back it’s been a critical influence upon my spending habits to this day. I’ve always been frugal by nature, but ‘The McDouble Scale’ just added rhyme to my reason about frugality. From it, I developed a very pragmatic approach to handling my money. More importantly, I gained a true appreciation to the value of a single dollar, a valuable lesson for any adolescent. I no longer treated the money I earned/was given like Monopoly money, and started treating it sensibly.
I got a wallet.
And I opened my first checking account, receiving a debit card for the first time.
Nowadays, I’m making “real” money as a salaried employee, but many of these adolescent lessons still hold true to today. Making “real” money for the first time will force you to take control of your finances in a way you never have before, and without a background in finance there will be a natural learning curve. You will spend money recklessly, at least once. You will struggle to budget. Investing and putting money away for emergencies will seem like foreign concepts initially. I struggled in these areas, and I’m still learning.
However, from experience, here are some personal finance tips I’ve found to be helpful to know as I navigate my 20s:
Set A Budget
I have a budget where I only allow myself to spend a set amount of money (barring emergencies) every two weeks. For me, that figure is $200 (note: I live in Kansas, which has one of the lowest costs of livings in the US. Your budget needs to be in sync with where you live.) Every second Friday, when I receive my paycheck, I withdraw $200. And for the next two weeks that $200 is all I have to spend. When that $200 is spent I’m depleted until the next paycheck, which renews the cycle again.
This firm budget of $200 forces me to rationalize all spending that I do, as since adopting this budget I’ve become acutely aware of every dollar I spend and where/what/how that dollar is spent. You learn lessons quickly, such as excessive weekends buying watered down drinks for people you hardly know isn’t worth eating Ramen and PB&J’s for the next two weeks. Or, having money to buy groceries is more worthwhile than going out to eat every night. I started this budget as an experiment, a way to control my wayward spending. Since enacting it though, I’ve not only become more fiscally aware of my spending, but I’ve also cut down on a host of unnecessary expenditures and started to save even more money than I was before. Budgeting forces you to reevaluate your lifestyle, but in the best way possible. It provides simplification to your life, and removes any type of excess, both financial or otherwise.
Time & Compound Interest Is Your Friend
Some of the best advice I’ve received since joining the working world full-time is that with each paycheck you need to pay yourself first.
At first hearing this I was confused, as I thought that the paycheck I receive from the hours I work is the literal representation of paying myself. But then this wise gentleman explained further: “Paying yourself means putting some amount of your paycheck away;” either to save, or as he recommended, in some form of investment account. Before this conversation I was scared to invest, as I saw it as a more widely accepted form of gambling (which it is, to some extent). I was scared of throwing away my hard-earned money, and I was confused about how it all worked. But this conversation stroked my curiosity, and I began to do research into how it all worked. From there, I came across the wonderful concept that is compound interest. Compound interest is the interest from your investments earning interest. I don’t want to bore you with the nitty-gritty technical details, and I’m no financial expert so I suggest you Google the concept further, but compound interest allows your money to grow over time without you actually doing any work. And the biggest multiplier to compound interest is time; the earlier you begin investing the more time you allow your investment to grow and compound, doubling and tripling your initial investment over time.
Last year I opened both a 401K and a Roth IRA. With my 401K a set percentage is taken out of each paycheck, and my employer matched up to 3% of my percentage (which isn’t very good, most companies offer better packages). My Roth IRA takes a set dollar amount out of my banking account, buying a set of shares with it each month. Now, investing will take some short-term sacrifice, as you’ll have less money each month to spend with these deductions. But you’re setting yourself for enormous long-term gain.
Ask yourself, do you want to buy clothes, shoes, and accessories today, or freedom to buy whatever you want for tomorrow?
Research, Research, Research
Right now my attitude is that any item that costs over $20 is a “major purchase”, and major purchases require research to be done before the purchasing decision is made.That may sound extreme, but it forces me to not buy on a whim. In no aspect of life can being more informed hurt you, and this certainly applies to your spending habits. Since adopting this philosophy, I’ve been completely satisfied with all purchases I’ve made that I’d done significant research on prior to purchasing. I’ve bought a road bike, a paddleboard, and I’m currently in the final stages of buying a vintage turntable; all significant spending expenditures by my standards, and all were purchased after at least multiple hours of research done beforehand. The internet is a powerful and vast hub of information, and should be used to your advantage. I also recommend checking sites such as Craigslist and eBay before purchasing from a wholesaler. Though they may carry a sketchy connotation to their names, from experience I’ve found the sellers on Craigslist and eBay to be just as wholesome and legit as a site such as Amazon, and have found some amazing deals as result. Just a little bit more time spent, and a little bit of research done, could result in hundreds of dollars in savings .
These are a few personal finance tips I’ve learned and practiced the past couple years. I’ve had to learn a few personal finance lessons the hard way, so I hope by reading this you can avoid some of the mistakes I’ve made. However, no personal finance strategy is a ‘one-size-fits-all’ model, and what works for me may not work for you. Having options though will allow you to make the best decisions possible going forward.