When you’re just starting out in your career, you may worry if you’re making the right decisions, especially when it comes to finances. You’re not alone. But creating an action plan can help you stay focused and learn to become a savvy money manager.
Here are 10 tips to help you make the most of your finances and overcome setbacks that may occur.
- Establish Your Goals
When you’re just starting out as a working adult, chances are you have plenty of ideas about what you’d like to do in your life, even if it may take some time to achieve your goals. Maybe you want to pay down student loan debt and start an emergency savings fund. Perhaps you dream of buying a new car or your own home. Designate which goals you can achieve sooner than later. For instance, setting up an emergency fund is a simple strategy that will help you build a foundation for lasting security.
- Create a Realistic Spending Plan
You may not have a lot of money, but as you progress in your career, that will change. That’s why it’s important to get a handle on how you spend now. Try using the 50/30/20 budgeting rule to track your money:
- 50% of your after-tax income goes toward your needs such as rent, transportation, food.
- 30% toward your wants such as entertainment, vacation, gifts.
- 20% is earmarked for savings and debt repayment.
Once you know where you stand, you can make changes as needed. If your needs are outpacing your income, or you’re saving absolutely zero, it’s time to readjust. Read Financial Advice from Your Future, Wiser Self for tips to improve your money management skills.
- Build an Emergency Fund
Having an emergency fund can keep you out of debt when the unexpected occurs – such as your car breaking down or a medical setback. Work toward saving a set amount every paycheck – such as $50 – until you save at least $1,000. You eventually want to save 10% of your income so you can build up to having three months of living expenses. Set up automatic payroll transfers to a designated savings account, preferably one that’s not connected to your checking account, so you don’t dip into it.
- Contribute to Your Future
While retirement may seem like eons away, start investing in your company’s retirement plan now. If your company sponsors a 401(k), your employer usually matches your contributions, which can range from 2% to 8%. Always try to contribute up to the equivalent of the maximum match, because after all, it’s free money you won’t get otherwise.
- Open an IRA
If you have earned income, but don’t have an employer-sponsored retirement plan, consider opening a traditional or Roth IRA. A traditional IRA is like a savings account with tax breaks because contributions and earnings grow tax-deferred until you start withdrawals after age 59 ½. Roth contributions are made with after-tax income, and they allow your earnings to grow tax-free if not withdrawn before you turn 59 ½ and the Roth has been funded for at least five years.
- Purchase Renters Insurance
Renters insurance is an affordable way to protect your stuff. It protects your belongings — from your laptop and TV — to jewelry and clothing. It also provides liability coverage in case anyone is injured in your home or apartment — a fall down the stairs, or a bite from your usually friendly dog.
Avoid Debt Pitfalls
Like many people today, you may have some debt you’re trying to pay off. Be careful of using more than 30% of your credit limit and avoid high-interest credit cards because they’re harder to pay off, especially if you’re making minimum payments. Learn to lean on your emergency savings, establish a budget and stop using credit cards if you’re digging a financial hole. Read Five Tips to Get Out of Debt to learn more about smart ways to manage and pay off debt.
- Put Your Student Loan on Auto Pay
Automating your finances is a great way to ensure you pay your bills on time and avoid late fees, which can affect your credit score. If you have a student loan, consider using an auto-debit plan. Usually, your lender will offer a discount for setting up automatic payments.
Learn About Investing
A proven way to build wealth over time is to invest in the stock market. The best way to get started is to invest in your company’s retirement plan. Then, to learn more consider taking a class, reading an investing book for beginners or avail yourself of the many online resources available to you.
- Meet with a Financial Advisor
You’re never too young to get financial advice. For instance, your credit union may offer professional guidance from financial advisors. They can discuss money management and ways to save for all your financial goals, including a personalized financial plan that you can adjust as your needs and goals change.