Money can be a pretty scary topic when you’re a broke 20-year-old fresh out of college or a thirty-something just trying to get by in a big, expensive city. Paying your bills every month is hard enough, so how on earth are you supposed to find extra cash for an emergency fund, let alone a nest egg large enough to see you through retirement? 

Well, like all kinds of big undertakings in life, the journey from financial zero to financial hero starts with just one step. This can be as small as automatically saving $10 from your paycheck every month or moving your banking online to benefit from a better interest rate. 

Many people in their 20s and early 30s find money stressful, confusing, and scary – and it’s holding them back. 

After a night on the town, Erin and her friend Lizzie sobered up over coffee. Like many millennials drawn to New York, Lizzie came to the Big Apple to pursue a creative career. But she’d found herself trapped in a boring corporate job. 

Erin asked Lizzie why she didn’t just quit. After all, she was 23, debt-free, and single – wasn’t this the perfect time to work crappy waitressing or nannying jobs while she pursued her true calling?

“I don’t know,” Lizzie replied. “Money just really stresses me out!” She never looked at her bank account and always just hoped there was enough cash to make it to the end of the month. Quitting her job would mean managing her money, which she’d never learned how to do.

Lizzie was a smart young woman who came from a well-off family. But if a savvy professional like her couldn’t manage her money, how were other people her age coping? It’s a question Erin couldn’t help asking herself. And it wasn’t long before she realized that Lizzie’s experience is pretty common among millennials.

Getting a handle on your finances is often the difference between a life of fulfillment and a life of frustration. If you don’t manage your money properly, you could end up working to pay the rent but being unable to afford the kids – or pets – you really want. It might even mean skipping out on every exciting experience on your bucket list, or else splurging on those experiences now, only to find yourself living from paycheck to paycheck for the rest of your life.

Yes, getting a handle on your finances is a serious business. It’s no wonder the anxiety about money can be crippling. So, how do you break out of this anxiety trap, or – better yet – avoid it entirely? 

Improving your relationship with money doesn’t require complex formulas. All it takes is a series of small steps that, together, add up to one big change.

Changing your relationship with money begins with finding hidden roadblocks. 

Money management isn’t rocket science. Sticking to a budget and saving for a rainy day is, after all, a pretty straightforward notion. Why, then, is it so hard to do? 

Well, just as “eat less” and “exercise more” are commonsense advice, this doesn’t automatically lead to good decisions when it comes to being healthy. That’s because compulsive behavior isn’t rational – there’s almost always a more deeply rooted issue involved. The only way to change is to unearth the reasons why you overindulge.

Your relationship with money started years before you took out your student loan or got a credit card. So, to change your compulsive behavior, you have to go back to your childhood – the time when the patterns holding you back were first established.

It all began to take shape when you realized how your parents or caregivers related to money. Maybe they were open about the family’s finances, or perhaps they treated money as taboo and talked about it in hushed tones. Maybe you were food-insecure, or perhaps you were embarrassed by your family’s wealth. Whatever your childhood was like, there’s a good chance you can trace your current hang-ups with money back to these formative experiences.

Discovering these roadblocks is the first step on the road to financial freedom. To get you started on the journey, answer the following questions as honestly as possible. You’ll need to write these down as you’ll be looking back over your answers.

What’s your first memory of money, and how does that memory make you feel? How did you get the money you spent growing up – did you deliver newspapers, for example, or did you have an allowance? What kinds of things did you buy? How did your parents or caregivers talk about money? What are your financial concerns today?

Now review your answers and consider what they say about your money mentality. Do you worry about money running out, or forever being in debt? If so, your mind-set is probably one of fear. If you’re still spending money like you did as a kid, you may be trapped in a cycle of helplessness. 

There are two basic approaches to budgeting: the cash diet and tracking every last penny. 

There’s no one-size-fits-all solution to taking control of your money. As we’ve seen, different people have different attitudes and hang-ups, and these can be traced back to their unique childhood experiences.

It’s no wonder, then, that one method will suit some people better than others. Take budgeting as an example. How you go about planning your monthly spend depends on what you hope to achieve. 

Let’s start with the cash diet. As the name suggests, this method means you’ll be switching as many of your financial transactions as possible from plastic to cash. Why would you choose this old-school approach in the digital age? Well, there are two good reasons.

First, research shows that you spend less when you pay with notes and coins rather than swiping a card. Second, it’s a whole lot cheaper. When you pay cash, you don’t have to worry about credit card charges, interest payments, or that dreaded monthly bill.

Making the transition to cash-only can be tricky, but it doesn’t have to be hard. Start by dividing your monthly budget into weekly installments. This will help you keep track of your expenses, and means you don’t have to stuff a month’s worth of cash into your desk drawer. It’s also a good idea to have a buffer of, say, $100 – just in case you get dinged by a bill you’d forgotten about halfway through the month.

Another budgeting method is the track every penny system. The idea here is to record every single transaction in a spreadsheet – with columns for the date, the item purchased, and the total cost – down to the very last cent. It might sound extreme, but it’s a great option if you’re the kind of person who wonders where on earth all your money went at the end of the month.

Recording your expenses like this allows you to find previously hidden patterns. This, in turn, means you can redirect your money in better ways. Abby, for example, discovered that she was spending close to $100 on bottled water from Starbucks every month. So she spent $10 on a refillable water bottle instead and freed up a whopping $90 a month for other things.

Realistic budgeting percentages can help you meet your long-term financial goals while staying on top of your monthly bills. 

Generally speaking, your money pays for one of three things: fixed costs like rent, financial goals like saving for a house, and flexible spending on day-to-day living. In an ideal world, you’d give 50 percent of your net income to the first category, 20 percent to the second, and 30 percent to the third.

If you’re a millennial living in a major city, this might sound pretty unrealistic. Your rent alone probably claims half your salary – even before you think about utilities, loan repayments, or subway tickets.

That doesn’t mean that budgeting by percentages isn’t useful. It just means you need to work your way slowly toward the ideal.

Think of these ideal percentages as a goal for when you’re earning enough for them to be realistic. For now, you can adjust them to your unique situation and re-evaluate them as things change.

No matter what your circumstances are, your percentages should be reasonable. In other words, you shouldn’t allocate 40 percent of your budget to fixed costs, 55 percent to flexible spending, and only 5 percent to long-term financial goals.

Take the following fictional example. Dwight lives in New York City and earns $45,000 a year. After taxes and contributions to his retirement fund, he’s left with $31,800, or $2,650 a month. 

Dwight needs $1,350 to cover rent, utility bills, and transportation costs. Throw in another $250 a month for student loan repayments, and Dwight spends $1,600 – or around 60 percent of his net income – on fixed costs.

That leaves just over $1,000. Ideally, Dwight should be putting 20 percent of his income toward his financial goals, which would mean saving $500 a month. But that wouldn’t leave him with enough to get by in an expensive city like New York. Dwight’s solution? He saves $200 a month, which leaves $850 – or 30 percent of his net income – for things like food. 

This is a temporary fix. When he gets his next raise, Dwight can keep his fixed expenses and flexible spending at their current levels and save the extra money for his financial goals. This will change his percentages and better align them with the ideal.

You can get a better interest rate on your savings if you switch to an online bank.

The way banks display your account balance suggests that the money is just sitting there, patiently waiting for you to spend it. This makes intuitive sense. It’s your money, after all – where else would it be but in your account? 

In reality, the money you deposit in your account is used to make loans to other customers, and this allows banks to make huge profits. In return, the bank offers you interest in the form of an annual percentage yield, or APY.

Typically, this might be as low as 0.01 percent, meaning you get one penny per year for every $100 in your account. When the bank loans money, though, it charges closer to $3 for every hundred dollars it lends. That’s a big difference, and it’s high time you started getting a better deal.

Chances are, you didn’t choose your bank based on the APY. Instead, it was probably about convenience – maybe your parents used the same bank, or maybe you just picked one close to your home. But APY should be a dealbreaker.

If you keep $2,000 in an account with a tiny APY, you’re looking at a return of just 20 cents at the end of the year. In most cities, that doesn’t even buy you two minutes of drying time in a laundromat. The same amount of money in an account with an APY of one percent, by contrast, yields $20. Granted, that’s not exactly a fortune, but it definitely stacks up a lot faster than 20 cents! 

So, where do you find a bank offering that kind of APY? In a word: online.

Internet-only banks usually offer much better APYs than their brick-and-mortar competitors because they’re cheaper to operate. They don’t have to buy land, construct branch offices, or pay property taxes. This means they can pass these savings onto customers in the form of better interest rates.

To find the bank that’s right for you, just Google “highest-interest savings account.” Before switching, however, make sure you read up on the bank’s fees and what other customers have to say about its services. The last thing you want to do is leave a bad bank for one that’s even worse.

Credit cards are a great financial tool as long as you clear your debts every month. 

Credit cards are an easy way to blow through your cash. Not only do you lose track of what you’re spending, but you also face a pile of bills with massive interest payments at the end of every month. 

That’s a pretty good reason to avoid credit cards altogether, right? Not quite.

While the cash-only approach can help you get a handle on your finances and spare you extra bills, using a credit card helps build your credit score, which will come in handy if you want to borrow money to, say, buy a house one day.

The best way to benefit from credit cards without exposing yourself to the risks is to follow one simple rule: never charge more than you can afford to pay off in full and make sure you pay the full balance every single month.

In theory, a credit card is a bit like a one-month loan. The credit card company gives you a piece of plastic that you can use to make purchases up to an agreed monthly limit. You buy what you need and, at the end of the month, the credit card company sends you a bill. 

But the bill you receive contains two numbers. The first number tells you the total amount that you owe. The second number is the minimum due amount. This is the smallest amount you can pay without defaulting, and it means that the rest of your debt rolls over into the next month. 

At this point, you have two choices. Pay the total amount and you’re all square – the credit card company can’t charge you if you don’t owe anything. Pay the minimum due amount, on the other hand, and they charge you with interest. This can be 20 percent per year or higher, and often comes with special clauses that allow the credit card company to increase the rates even further if you miss a payment. 

This is a cleverly designed trap, and it lures millions of credit card users into spending more than they can afford. The result? A ruined credit score and spiraling debts that become harder to pay with every passing month.

Saving money prevents you from falling into a debt trap.

What’s the single most effective change you can make when it comes to your financial behavior? Ask a personal finance expert that question, and you’ll likely hear these words: “Pay yourself first.” 

The phrase means that the first thing you should do with your paycheck is put a chunk of it into savings, rather than wait until the end of the month to see if there’s anything left. 

Now, if you’re a securely employed, mid-career forty-something, this isn’t too much of an ask. But if you’re a cash-strapped millennial who feels lucky just to break even, paying yourself first is pretty hard. Still, there’s one compelling reason you should do it anyway.

Life is unpredictable – you never know what might happen next. This is why it’s so important to protect yourself against the worst, which is exactly what you’re doing by saving money.

When you hit a streak of bad luck, and everything starts breaking down, you have two options. You can either dip into your savings to pay for that unexpected bill, or you can use a credit card. 

The first option is painful – no one really wants to use their rainy-day fund, after all. But the second option is much worse. Maxing out your credit card to cover an emergency means you’ll be paying interest on debts rather than saving for the future. This leaves you even more exposed the next time something goes wrong.

So, how do you pay yourself first to avoid this debt trap? The easiest way is to start small. Skip out on one $10 craft cocktail or a couple of $5 coffees per paycheck, and put that money into a savings account instead. It’s not a lot, but that’s kind of the point. If you adapt to small and easy changes, the new habit will stick.

Once you’ve learned to live with ten fewer dollars each month, you can start making bigger changes. Raise the amount you save to $20, $50, or even $100. You can make this process even simpler by speaking to your HR department and having your company wire this money into your savings account each payday. If that’s not an option, have your bank set up an automatic transfer. That way, you don’t have to think about it at all.

Your current financial situation dictates the size of your emergency fund. 

It doesn’t matter if it’s a student loan, consumer debt, or a mix of the two – when you’re in debt, you’re almost certain to get hit by an unexpected bill at one point or another. And if you’re poorly prepared for one financial crisis, you’ll be even more exposed to the next one. 

That’s why it’s so important to have an emergency fund to see you through to the next paycheck. It means you can avoid credit card debt and go right back to saving when things pick up again.

How much should you save to beat bad luck? Well, the short answer is “it depends.”  Classic financial wisdom states that your emergency fund should cover six months of living expenses. If you’re a debt-burdened, underemployed millennial, however, that might be out of your reach. In that case, aim for a minimum of $1,000 to keep you afloat in a pinch, bearing in mind that this is for one person. If other people or pets rely on you, up this by at least $500 per dependent.

If you’re debt-free or your debt is manageable, by contrast, you should be able to act on the advice and save enough to cover six months of basic living expenses. Just add up your monthly spend on essentials like rent, bills, and groceries and multiply this by six – that’s your target. 

Finally, if you’re a freelancer, you’ll need to save enough to cover nine months of living expenses. Not only is everything more expensive when you’re your own boss, but you’re also working with income that changes every month. That’s stressful enough at the best of times, so it makes sense to give your emergency savings some extra padding.

Ideally, your emergency fund should be cash in a bank account with an APY of at least 1 percent, not tied up in investments or stocks. That’s because having an emergency fund doesn’t just give you a financial cushion – it also gives you peace of mind. The last thing you want is to be running around selling stocks to access your money when you’re stressed out about other things!

And there you have it – a series of simple tricks that, together, will help you get a handle on your money and transform your financial life!

Lots of millennials find money stressful, and that’s holding them back. If you don’t have a handle on your finances, you’re unlikely to be saving for the future, and that means you’re headed straight into the debt trap. But you don’t have to live paycheck to paycheck. Learn to budget by percentages and use your credit card the right way, and you’ll be off to a great start. Throw in online banking and an emergency fund to see you through hard times, and you’ll be well on your way to financial freedom.