While you were still in high school or middle school, you didn’t have any subjects about personal finances, tax, or retirement. Once you get your first job, you’re pretty much clueless about managing your money. The early twenties is a very good time for you to start saving for your goals and even for retirement. However, many young professionals don’t see the need for this or simply don’t know where to start. Don’t be afraid to get started on learning personal finance. It’s not that difficult and you don’t have to do lots of reading. Math doesn’t have to be your strong point as well. Here are some things to get you started on managing your money.
Your parents may or may not have taught you about self-control. If they skipped over this part, keep in mind that you don’t need to buy what you want as soon as possible just because you can. If you see a new gadget coming out next month, happiness doesn’t mean buying it off the shelves immediately. Sure, you can use a credit card to delay payments, but the interest rate will make it more expensive. In addition, once you start charging items to your credit card, it doesn’t stop with just an item or two.
Don’t rely on credit cards too much for your purchases, important or not. Keep the number of credit cards you own to a bare minimum. You don’t need 4 or 5 credit cards just because you could apply for it or it was given to you. If you do use a credit card, make it a point to pay the bill when it comes around. Delaying it will incur interest rates and other fees which equate to paying more than the store price.
Think about Your Financial Future
Learn to manage your own money first; or you will end up requiring other people to do it for you. In this case, there’s no assurance that they’ll manage it the way you want it or that they’ll get achieve good results. In addition, financial planners or managers cost a lot of money. It’s a bit ironic (and expensive) to pay other people to manage your own finances.
What you can do is to start reading a few books regarding personal finance. There are a lot of free resources you can find on the internet or in self-help books. Don’t worry if you’re not familiar with anything about finance, these resources range from the total amateur to professional level.
Once you do soak up some financial knowledge, make sure to apply them in your personal life. It may be difficult, but limit your significant other’s spending habits or set boundaries for your night outs. These are necessary steps to make sure money works for you.
Find Your Money Trail
After you’ve read through personal finance books, you’ll develop an understanding for keeping track of your expenses. Monitor your expenses to make sure you’re not spending way over what you earn. This is where budgeting skills come in handy. By watching what you spend on every month, you’ll know which small expenses add up and need to be curbed. That morning coffee on your way to work might seem like a minor expense, but when you view at it on a monthly perspective, it really accounts for much.
Make changes to your budget if you deem it fit. If it’s not possible to totally remove an unnecessary expense, you can substitute it for a cheaper alternative. Instead of buying your morning coffee at a coffee shop on your way to work, you can choose to brew it yourself and just bring it in a flask. You should know by now how much these savings add up in the long run.
Create an Emergency Fund
Part of financial experts’ advice always includes setting aside money for you. They don’t mean setting aside money for shopping or for your partying. Put money aside for an emergency fund. With the volatile economy right now, you never know when you’ll suddenly find yourself jobless. There might also be a medical emergency for you or your loved ones. Keeping cash for these scenarios is important since you never know when they will happen.
In addition to creating an emergency fund, constantly setting aside a portion of your paycheck can easily develop this habit. After you’ve set aside funds that can last you from 6-8 months, you can move to other saving accounts. You will be able to save for things like a new house, a car, or your retirement with ease once you develop the habit.
Set Aside for Retirement Now
While you were still in the kindergarten era, your parents were already preparing and making plans for your college days. In a similar way, it’s also a smart idea to prepare in advance for your retirement. What you’re actually after is the compound interest in your savings. So even if you start with a lesser amount, it has more room to grow and you end up with a huge sum for your retirement. This will allow you to retire with ease and without worries about what you’ll do after.
A lot of companies offer to match your contributions or offer retirement plans of their own. While you’re still in the company and will probably stay there for a long time, take advantage of this opportunity. It’s basically free money given by your employer.
Taxes are very difficult to understand, it’s even hard just to find out where to begin. However, taxes are always there whether you like it or not. Take time to read up about taxes that are applicable to your situation (single, employed, etc) and what other tax options you can take advantage of. Browse free resources online or read up on books that cater to this topic. If you want a quick option, you can just visit online tax calculators that show you how much you are required to pay depending on your situation.
This is a very good method to prepare yourself in the future when you prepare your own annual tax return. This process can get messy and convoluted fast. At first, you might have to rely on a professional to help manage your tax returns, but once you get the hang of it, you can do it on your own.
Take Care of Your Health
It’s easily overlooked when you’re still in the prime of your youth, but your health is crucial in terms of money as well. If you’re sick, you won’t be able to render any kind of work and you might even have to take some time off to recover. Lastly, you’ll have to tap into your emergency funds for this situation so it’s definitely something you would want to avoid while you’re still setting up your finances.
There are a lot of opportunities to save money as a young professional. Your income is increasing, and your job security is high. If you manage your money properly, you’ll be financially stable when you reach middle age and you can even retire without any worries or fears.