Dan Raiford is a Finance and Economics double major at Baylor University. He is a freelance personal finance writer and is planning to start his own blog soon.
If you are getting ready to enter the workforce, there are some personal finance tips that can help prepare you for your future. While you may think that you are young and you do not need to save money, you are wrong. It is vital to your financial health that you start to save money early on and practice money managing, so that you will succeed in the future.
Below, I will go over some personal finance tips for any and all young professionals who are entering into the workforce.
- Budget Your Money
It doesn’t sound fun, does it? I don’t think so either, but it is something that must be done. You should sit down and create a budget for yourself and learn how to manage your money better.
When you sit down to create your budget, start with your necessities first. When I mention necessities, I am talking about things such as your rent or mortgage, utility expenses, and food. Once you have all of your necessities out of the way, budget for any student loan or debt payments you have.
If you have money left over after that, you can save some and use some on luxuries that you would like to have such as Internet, cell phones, cable, and more.
These apps will help you track your spending and can help put a little extra cash in your pocket at the same time!
Perhaps you have heard of the “latte factor.” Here is a brief refresher. Imagine you buy a cup of coffee (or your favorite soda) each day and it costs two dollars. Your wallet probably doesn’t feel any thinner from these types of purchases because of the small amounts. If you buy a drink every day of the year, that comes to $730. That is a large amount of money. Qapital is an app that helps you save money using the “latte factor” concept by automatically withdrawing a couple dollars twice a week from your checking account and deposits it into a savings account. You can create rules to determine the withdrawal frequency. For example, you might schedule $10 to be withdrawn from your checking account every week. You can also have Qapital “round up” a purchase to nearest dollar amount and deposit the difference into the savings account. There are many more rules that can be created, and, Qapital is free to use.
Currently, Wally is only available for Android and iPhone mobile devices, but they are working on a desktop version too. Wally is a free app that helps you track your income and expenses. They do not have the capability of linking to your bank accounts, so you will have to manually enter the information for each account you want to track. You can also create savings goals and daily or monthly budgets. If you like to keep detailed records of your spending, Wally also allows you to take a picture of your receipts.
You Need A Budget (YNAB)
This is probably the best, low-cost budgeting program available. You Need A Budget (called YNAB for short) costs $5 a month to use but is worth every penny if you do not know where to start when making a budget. YNAB will walk you through every step and present budget items you might have overlooked like car repairs and vacation. YNAB offers a 34-day free trial to help you get started and is available for desktops and mobile devices.
- Keep Track of Your Student Loan Debt
As a young professional, you need to make sure that you keep track of your student loan debt and how much you have to pay off. Your student loans can easily get lost in the mix of things as you transition from school to career, so pay extra attention.
In addition, you should always make sure that you calculate your payments into your budget and try to avoid missing any of your payments, as this can have a negative impact on your credit score.
If you are planning to attend college in the fall, are already enrolled, or a recent graduate, there is a calculator for you. Whether you attend a trade school, community college, or a 4-year university, post-secondary education costs money. Many students have to borrow money to make their degree dreams come true. There are a host of different student loan calculators that can help you determine what your monthly payment will be for many different scenarios such as prepayment, refinancing, and early payoffs. There are even calculators that compare different student loans (not all student loans are created equal) and to calculate tax deductions.
- Save for Retirement
Retirement? Yes, I know that you just entered the workforce, but retirement is something that EVERYONE needs to think about, especially if you plan to retire. You should put some of your paycheck into a retirement account for yourself if your employer does not offer any type of 401k plan.
If your company does offer a 401k plan, you should see if the company will match a certain amount that you deposit into the account. If they do, make sure to take full advantage of this.
- Have an Emergency Fund Established
What would you do if your vehicle needed to have transmission repairs? What about if you had an emergency medical condition and insurance did not cover it?
These can happen and while you may think they won’t happen to you, they definitely can and if you do not have an emergency fund in place, you will find yourself in a cramped position.
You should set aside money out of each paycheck and put it into an emergency fund. Your emergency fund is DIFFERENT than your savings account. Set a goal for your fund and make it happen. This way, you will always be covered in the event something goes awry.
- Protect Your Assets
You may not be thinking much about your assets right now, but you need to. Think about how much money you have put into your new apartment or into your new business. Make sure that you take the time to secure these items with the appropriate insurance policies. If you have investments in banks, make sure you choose a route that is conservative if you do not want to risk losing too much money and so on.
- Pay Off Debt Early
Lastly, pay off all of your debt early and do not drag it out if you do not have to. Trust us, you will save thousands of dollars if you simply pay it off early. The easiest way to do this is to send a few extra bucks every month towards your debt.
On the other hand, you can also refinance the debt that you have and get a better rate. In fact, if you refinance your student loans, you can save thousands, sometimes up to $20,000, over the term of the loan repayment period.
Final Thoughts on Personal Finance Tips for Young Professionals
If you want to have a prosperous future, start with managing your money properly. If you can do this, you will find that everything else works out and falls into place for you.
Remember, budget, save, and pay off your debt. You will be golden.