You’ve landed your first job… now what?
Securing your first job offer and paycheck is an exciting time. However, it’s also essential that you quickly learn how to successfully manage your finances to avoid spending all your money at once and ending up with unnecessary debts.
Here are 5 top tips to help you develop money management skills that can help you throughout your life.
Tip 1: Create an accurate budget and spending plan
Begin by calculating your total monthly expenditure by adding up the cost of your rent and all your bills. Also factor in the cost of your commute, groceries, and any other direct debits or regular payments you might have, such as your phone bill or car payments. Whether you use computer software to create a spreadsheet and track your payments, or you simply write them down on a piece of paper, it’s essential that you calculate how much money you will actually have left once you have deducted all of your expenses from your paycheck.
Tip 2: Calculate your debt costs
You need to ensure that you factor in the cost of any debts you may have, including any student loans, credit card debts, or personal loans. It’s useful to remember that whilst you have a grace period of six months before beginning to pay off your student loan, these payments will need to be made, so it’s best to plan ahead for them from the start.
“You may want to look into refinancing all of your loans into a single monthly payment if you find this easier to manage. This option can sometimes help to lower your interest or save you money in the long term,” says Thomas Darrow from 1Day2Write and Write My X. “Wherever possible, try to pay using money from your wages and avoid relying on or paying with credit cards once you’ve started earning. This will help you avoid accumulating unnecessary debt, control your spending, and improve your credit score and history.”
Tip 3: Automate your monthly savings
Once you have created a budget, you’ll have a clearer idea of how much disposable income you have left. Whether you have a specific saving goal in mind (such as a new car, a house, or a holiday) or you simply want to set money aside, it’s a good idea to decide on a realistic and manageable amount that you can regularly set aside every month. You could even start with as little as $20 or $50 per month. Ideally, you should try to set up an automatic withdrawal to your saving account every month from your bank account to ensure that you always successfully save this money.
If you want to take this a step further, I’d recommend that you consider automating your monthly expenses as well. Your phone bills, rent payment, hydro, and other various types of utilities are all great examples. The last thing you’d want to be on the hook for is a late payment which can both go against your credit score, and lead to unnecessary interest payments. For that reason, it’s equally important to automate your expenses as well.
4. Plan for your retirement
Although you might not be thinking about your retirement at this stage, your future self will thank you for having started saving for this early on. If you have access to employer-sponsored retirement and investment accounts, including a 401(k) plan and a Health Savings Account, it’s a good idea to take advantage of this.
Alternatively, try to set aside as much of your paycheck as you reasonably can towards your retirement each month. If your employer offers a matching contribution, you should try to max it out as it will help you to save more money for your future. Savology’s retirement calculator will help you better understand your retirement and provide you with accurate estimates of your retirement age, retirement income, retirement drawdown, along with even providing suggestions and recommendations on how to steadily improve.
5. Create an emergency fund
There can be many unexpected or unforeseen situations that arise and which can result in costly bills, including medical emergencies or car and house repairs. Make sure that you prepare and budget for these emergencies by creating an emergency fund.
“Ideally, you want to aim to have a minimum of one or two months’ worth of living expenses saved up for emergencies. This way you can avoid having to rely on your credit card to bail you out. Start off by saving small amounts at a time and remember to replace any money you have to use if an emergency does arise,” says Laura Johnson from Britstudent and NextCoursework.
While one to two months is generally a good place to start, it’s important to understand it will only go so far. Your real goal should be saving for three to six months of after-tax income to consider your emergency fund adequate.
Conclusion
Learning to manage your finances early on will help you establish good habits for life. Ensure you have an accurate and up-to-date budget and aim to set aside some money for your retirement, an emergency fund, and your savings. This way, you’ll not only be able to stay on top of your finances, but you’ll also successfully improve your credit score and ensure you are prepared for all eventualities.
