If you recently finished school and have landed your first serious job, you may think it’s a little early to start worrying about saving and investing your money. That couldn’t be farther from the truth. No matter how you look at it, the earlier you start saving, the more you’ll have later. Plus, figuring out how to manage your income now will make things far easier down the road when you are buying a home or planning for retirement. The cultivation of good financial habits brings life-long rewards. These initial budgeting tips will help you find your financial footing and begin investing in your future.
Cover your bases.
As you begin thinking about long-term goals, make sure you have a plan of action in place that will address your immediate situation. That should include paying off any student loans you may have. With an interest rate of 5-6% or more, it’s important to pay off student loans as soon as possible—especially since federal student loans are the most difficult type to shake. Current law makes it extremely difficult to have student loan debt discharged during bankruptcy. Of course, no one should be planning for bankruptcy, but one key to a financially secure future is to address debt before life gets even more complicated. You don’t want old debt looming over your head when you’re planning a family or looking for a home.
In addition to paying off your loan debt, it’s important to put away emergency savings. At some point in the near future, you will have unexpected expenses. When you have to pay for major car repairs or an unexpected surgery, you will thank yourself for setting the money aside and sparing yourself from debt.
Determine your long-term goals.
Even if you don’t have your whole life figured out, chances are you have a feel for your major priorities and interests. If you plan to travel the world while you are still young, your saving habits will look a lot different than if your goal is to retire early. Articulating your goals will help you determine how much to save every month. Some advise young people to set aside as much as one third of their monthly income, while others say to save at least 10%. Whatever amount you decide on, make sure to set aside money for each of your important goals (from retiring early, to owning a home, to traveling the world) on a monthly basis so none of your goals get neglected.
The benefit of saving right away is that you won’t get used to a lifestyle that you later discover is too expensive. It’s much easier to start lean and work your way up than it is to scale back on the things you used to enjoy.