When you get your first full-time job, you are earning more money than ever before, but there are more demands on your money, too. In addition to enjoying yourself now that you got away from parents and school, you may have rent, auto payments, student loans, a credit card balance, and a wide assortment of monthly bills. If may come as a shock, but you should also start your savings. You may plan to start saving for something like a wedding, car, home, or travel, but you should also start saving for an emergency fund of 3-6 months’ worth of expenses, plus your retirement. No I’m not joking about saving for retirement when you first start working, because the earlier you start, the less likely that a future you will come back to the past and thrash you for financial incompetence. We’ll discuss this more thoroughly later.
How can you have peace of mind when you have to pay debts, start several savings plans, pay bills, and still live your life? You can’t buy peace of mind, but you sure can get your finances to help achieve it. Peace of mind comes from having control of your finances rather than worrying from pay check to pay check. It will probably be difficult for your paycheck to meet all your needs and wants, so it’s critical to establish priorities. Use these tips as a guide.
- Put your major expenses on autopilot. Pay your major bills automatically from your checking account (rent or mortgage, student loan, car payment, utilities, retirement savings, and emergency savings). Consider your savings goals as essential expenses. Many companies will let you set up automatic payments from your checking account. For others, use your bank’s online banking features to setup automatic payments for any payment that doesn’t change each month. Putting your essentials on autopilot means you will pay on time and be less likely to let luxuries gobble up money needed for essentials. Ensure that you have money in your account when the bills are due. Have some kind of overdraft protection on your checking account for those instances when the bill is larger than you expected or your planning is off.
- Learn to live within your means. Adjust your spending so it is less than your income. Track your spending for at least a month, make adjustments as needed, and reward yourself when possible. It is important to know where you money is going, so make a list including those little expenses for coffee, soda, dry cleaning, eating out etc. But this doesn’t have to be an onerous task: use a spreadsheet, notebook, or smartphone; estimate, round off, use broad categories, be honest, and do it for at least a month. I’ll cover budgeting in more detail in a later, but for now, web savvy, young adults can be pointed to finance tracking sites like Mint.com or www.smartaboutmoney.org. Smartphone users may value the growing list of money management apps such as “Mint”, “Quicken Money Management”, CoinKeeper, or “Pageonce”.
- Start funding your retirement. This is an early priority because the longer you wait, the more you will have to save later. Start with something, even if it’s only $50 – $100 per pay period.
- Start an emergency fund for at least 3-6 months expenses. No one expects emergencies, but everyone gets one sooner or later. Knowing you can handle it financially makes it much easier to sleep at night.
- Pay off credit cards. Don’t pay interest for the next year on those shoes or that pizza. Pay more than the monthly minimum. Put any extra money you get towards paying off this credit card debt because it is likely to have the highest interest rate of any debt you have. Reach the point where you pay off the balance in full every month. This is one of the greatest feelings of accomplishment you can have and it makes all the rest of your finances much, much easier.
- Save for any of your personal goals like a car, home, wedding, travel etc. Note that traveling now before you have a family is much easier and less costly, and there is a great big, exciting world out there to see.
- Enjoy the rest. If you don’t have anything left over, go back thru your list of spending and prioritize it. When you have money left over, then you are on the road to financial security and peace of mind which are priceless.
Once you have identified your priorities and have a plan to meet them, everything else becomes easier.