You just got your very first job. Congratulations! This major event in your life is both rewarding and exciting, and a little challenging too. After all the years of hard work in school, it’s time to apply everything you’ve learned, live an independent life, and start earning (which is is probably the most fun part!).
But it’s also one of the most difficult. By the time you received an offer, you should already start to think about how you can effectively manage your finances. It may feel like you already have a steady income stream but as you start making a living of your own, you will realize you also have plenty of financial responsibilities. You don’t want to be one of the 65% of Americans who end up struggling in retirement because they have little to no savings, do you?
Here are some tips to effectively manage your finances when you get your first job:
This is probably the most basic personal finance management step. Unfortunately, many people still struggle to make a budget and stick to it. There are many benefits to making a budget. First, it ensures that you get enough cash to pay for your financial liabilities, from your mortgage or rent to your utility bills, debts, daily allowances, etc. Second, budgeting helps you live within your means. When you have a nice cash flow, it’s easy to get carried away that you might end up overspending on things you don’t actually need. Determine what your expenses are. Don’t forget to include savings on your monthly budget. Establishing your spending plan as soon as possible should be your first priority so don’t find yourself in financial trouble later on.
It is important to set your goals straight right from the beginning. When it comes to your finances, you should think ahead. Focus on growing your wealth through various opportunities, such as investing and putting up your own business. Take time to plan about your financial goals each year. Read books about finances so you will have a clear guide on how you can maximize your earning potential. Remember, this is all about your future.
When you start earning your own money, one of your priorities should be to save, save and save. Many people spend 20, 30 or 40 years in the corporate world but end up saving little or nothing at all when they retire. You will be surprised how a few bucks of savings each week can become a ‘big thing’ after a few years. There are many ways to ensure that at the end of each month, you have extra cash to keep. Make it a goal to deduct your savings first before spending. Or, make your savings automatic. Create separate bank accounts if needed to avoid getting confused with your funds. If you’re saving up for travel, make sure it is separate from your emergency and retirement savings.
Now that you have a new source of income, it’s time that you start tackling your debts. The faster you repay these loans, the better. Your goal is to get a good balance between paying off your debts and saving money. Personal loans online are a great way to support a huge purchase or deal with an emergency. But, you want to plan properly on how you will repay your debts to avoid penalties and staggering interests.
When you start earning, one of your financial goals should be to establish a good credit. You can do this by applying for a secured credit card or becoming an authorized user of someone else’s card. Use it properly and pay your dues on time and in full amount. Just like with your other expenses, you should track your credit card purchases properly to avoid going overboard.
The 50/30/20 spending rule was introduced by Harvard bankruptcy expert Elizabeth Warren. The idea is to limit 50% of your after-tax income to address your needs, such as groceries, housing, utilities, car payment, insurances, etc. 30% of your after-tax income should then go to your ‘wants’ – travel, leisure, restaurant trips, spa treatments, and the like. The remaining 20% goes to your debt repayments or savings. This spending plan works for many people, but we have different circumstances. Experiment on what works for you. Adjust the percentages as you see fit, but make sure to address all three – your needs, wants, and savings/debts.
Learning how to manage your money can really pay off. If you’re after financial freedom, stable cash flow, and a better future for you and your family, you should consider these tips. As you become more mindful of your spending habits and establish good money practices, handling your finances and saving up for the future will come very easy.
Lidia Staron is a part of Content and Marketing team at OpenLoans.com. She contributes articles about the role of finance in the strategic-planning and decision-making process. You can find really professional insights in her writings.