If you have just earned your degree and landed your first full-time job, congratulations. You should be celebrating these achievements, but don’t give into the temptations to spend too much money or go further into debt.
It may look like you can afford the things that you have always wanted now that you have started your professional career. Yes, you are earning a decent salary for the first time, but you also need to use your income to prepare for your future. This can be difficult for young professionals who just want to enjoy the rewards of all their hard work. By following these budgeting and savings tips, you can grow your income and enjoy a better life tomorrow.
1. Control Your Impulses by Setting a Budget
You may be finished with school, but budgeting is still important. You can quickly set a budget by subtracting your monthly bills from your after-tax monthly income. The difference is your discretionary income, or the money that you spend on food, entertainment, and other expenses that you can control.
Once you have figured out what your discretionary income is, you should be asking yourself some tough questions as you set your budget. Do you really need a fancy phone with an expensive data plan? Will you really feel happy if you hang out with your friends in hip restaurants all the time? You already know you are awesome, so there’s no need to spend a lot of money in order to show the world how accomplished you are.
2. Save Money for Emergencies
With your new job and your hard-earned degree, it may feel like these good times will last forever. You need to remember that bad things can happen to good people too. Sudden unemployment, major car repairs, and health problems that aren’t fully covered by insurance can all happen at any time. You need an emergency fund to be prepared for these bad things.
Your emergency fund is the first place that you should stash your savings. Open a savings account and build up a balance that equals between 3 and 6 months of living expenses.
3. Start Saving for Your Retirement
Once you build up your emergency fund, it is time to start saving up for your retirement. Savings accounts don’t pay a lot of interest these days, so you will have put your money into a well-managed investment fund that grows with the stock and bond markets. You can put money into a 401(k) if your employer offers one, or you can independently open an individual retirement account (IRA).
It may seem like you don’t have to worry about a retirement that is still decades away. However, you should be aware of the powerful nature of compound interest. Money that you put in to your fund now, even if you don’t have much room for savings in your budget, will grow a lot more than money that you put away when you are older.
4. Pay Back Your Debts
You should at least be making the minimum monthly payments on your debts. This helps you to avoid late fees, poor credit, and the crushing burden of unnecessary interest expenses.
Try to budget some extra money and pay more than the minimum. Apply these extra payments toward your high interest credit cards first. You will pay your debts off more quickly by doing this, and you will also save money by lowering the amount of interest that accumulates over time.
5. Take Care of Your Health
You should be enjoying your youth right now, but don’t make expensive gambles with your health. You can avoid diseases and high hospital bills in the future by eating well, exercising, not smoking, and limiting your drinking. A healthy lifestyle will also help you to keep monthly health insurance payments from increasing.
6. Invest in Your Earning Potential
If you are have set a tight budget and are still having trouble with saving money and paying off debts, it is time to earn some extra money. You can do this right away by taking advantage of your skills and passions and working freelance jobs on the side.
Investing in your full-time career by furthering your education is a good long-term use of your extra time and money. Even if you can’t afford graduate school, taking training and certification courses can still help you to increase your salary and find better jobs in the future.
Ryan Bridges is a contributing writer and media specialist for the CreditSoup. He regularly produces content for a variety of business and finance blogs, based around the transitional challenges which comes with managing money and financing.
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