As a student, you are likely used to living from hand-to-mouth in terms of making ends meet. But all that is about to change when you graduate college and land your first job. Suddenly you will have cash. But it is how you handle it that can make all the difference to your financial future.
These 10 tips will give you the guidance you need to begin using your paychecks wisely, creating a financial safety net.
Tip #1: Set up a “rainy day fund.”
Financial expert Dave Ramsey is one of the financial industry’s strongest advocates for building a rainy day or emergency fund.
While your personal rainy day fund can look different, Ramsey recommends starting with a financial safety net of 3 to 6 months’ worth of easily accessible basic living expenses.
Tip #2: Live economically – at least at first.
There are all kinds of reasons why you want to eschew the flashy car, the fancy apartment and the optional extras at first. For example, you want to pay off your school loans, build your emergency fund and just give yourself some breathing room to get established financially.
By socking your extra cash away now and living economically, you will be better able in every way to afford those perks later on when you are feeling secure in your finances and have established a good credit history of paying off loans and paying bills on time.
Tip #3: Create a working monthly budget.
According to a recent Gallup Poll, 66 percent of adults do not use a budget to manage their personal finances.
In light of this research, it probably won’t surprise you to learn that 80 percent of adults are also in debt.
If you want to be among the 20 percent who is living debt-free, a personal working budget is one of the best tools to help you achieve that goal. Your budget may shift and change over time, but it will give you a broad-brush outline to understand where your paychecks go and what you need to increase your savings towards the future.
Tip #4: Pay off those student loans.
Boy is loan repayment unglamorous! And since many lenders will offer a 6-month post-graduation grace period to allow students time to find a job and get financially established before making that first loan payment, it is all too easy to just forget about student loans.
But failure to pay can impact your future in surprisingly unpleasant ways. This can include impacting your credit score, permitting the lender to garnish your wages, your tax refund money and your Social Security benefits.
You may also discover you can’t get a vehicle or mortgage loan later on when you go to apply. All things considered, if you are struggling to pay your loans, it is much smarter trying to work out a less burdensome payment plan than to simply stop paying.
Tip #5: Participate in company-sponsored retirement accounts.
You want to begin researching retirement savings options right away. In some companies, the vesting period is just a few years. (Vesting period is the waiting period before you can take your full savings with you if you leave the company).
Some companies also match funds contributed to retirement accounts. And, best of all, any funds you contribute to a retirement account will be tax-free in the year you contribute, which will reduce your taxable income at year end.
Tip #6: Create a monthly financial management system.
Many new hire jobs are very intense and demanding. If you are in a situation where work feels all-consuming and you are at the bottom of a very tall ladder looking up, it may be easy to just let the mail – and the bills – pile up.
Your credit score won’t thank you for this later, however. Instead, develop a monthly system that works for you. Put all your bills into a special stack for priority handling. Or automate every bill payment that offers this option so you don’t miss a payment.
[clickToTweet tweet=”It is much smarter trying to work out a less burdensome payment plan than to simply stop paying.” quote=”It is much smarter trying to work out a less burdensome payment plan than to simply stop paying.”]
Tip #7: Use bank resources or apps to make savings automatic.
Outside of saving for retirement, you can use apps like Digit.co and bank resources like special dedicated savings accounts to automate your savings.
These tools will make small automatic deposits for you so you can save without even having to think about it.
Tip #8: Work from the 50-30-20 plan.
Many of today’s leading financial experts advocate for a 50-30-20 budgeting plan. This plan represents the following use of your paychecks:
– 50 percent towards living expenses.
– 30 percent towards lifestyle and entertainment.
– 20 percent towards savings.
Tip #9: Consider refinancing your debt.
If you have outstanding credit card debt left over from college, or even student loan debt with a high interest rate, consider refinancing or consolidating this debt to a lower rate to make repayment less burdensome.
Contact the lenders and ask for a lower rate or a refinancing option. Then go from there to see how you can make your debt more manageable.
Tip #10: Reward yourself for savings success.
There is no reason to force yourself to live like a pauper now that you finally have some handy cash. In fact, this may set you up for a lifelong fear mentality that inhibits you. It is much smarter trying to work out a less burdensome payment plan than to simply stop paying from enjoying your own success.
To avoid this fate, set up some longer-term savings success rewards for yourself. For example, if you save a certain amount per month for six months, treat yourself to concert tickets or a video game. This way, you will feel more excited about your own financial success.
By following these 10 tips and taking a disciplined, practical approach towards learning to manage your money well, you can set yourself up to enjoy the rewards of your own hard work in the near and far future.