As a savvy young professional, you may be a pro at project management or software development or social media strategy, but how’s your financial literacy? If, like many of your peers, you never got an education in financial fundamentals during your formative years, how do you know what tools are available to you to maximize your money come pay day?
In the flux of establishing your life and career post-grad, it’s easy for things like retirement planning and long-term savings goals to fall by the wayside. After all you’re still dealing with the challenges of establishing your financial independence on a starter salary and potentially thousands if not tens of thousands of dollars in student loan and/or consumer debt.
It’s easy to default to “I’ll get to it someday”. But prolonging your excuses for not planning for your financial future will undoubtedly backfire when the cold hard numbers of financing a home or a wedding or other major life goals hit you.
So stop the excuses! Tackle your finances with the same fervor you apply to your professional goals. Make sure your money is working at least as hard for you as you’re working for it by beefing up your financial literacy and following these fundamental financial guidelines.
1. Take Financial Inventory. Do you know how much you’re spending each month? Really? The exact number and exactly how it compares to your earnings?
It’s hard, if not impossible, to plan for your financial future without being grounded in the numbers of your financial present. The first step in creating any successful financial strategy is understanding exactly where your money is going and how you can shift the financial resources you have available to align with your long term goals and priorities.
Track your finances with a simple spreadsheet, a financial app, or talk to an advisor to get guidance on the best way to get an exact picture of your spending.
2. Build Your Credit. Your credit score is an essential component of your financial profile. Everyone from lenders to insurance companies to landlords will be using your credit score to assess your financial reliability – whether you’re applying for a loan or an apartment. Build your credit by paying all bills on time and in full, and check your credit reports each year to ensure that no fraudulent activity or mistaken reporting is negatively impacting your score.
3. Pay Down Debt. Whether you have a couple hundred dollars in credit card debt or six figure student loans, the key to paying down debt is attacking it head on with a realistic repayment plan. Research your options, negotiate with your lenders to reduce balances or interest rates, and stay on top of your bills by building debt repayment into your budget.
4. Build Emergency Savings. If the recession and economic challenges of the last six years were a lesson in anything, it was the importance of emergency fund savings. An emergency fund can be a savings or money market account that is used to fund unexpected emergencies like job loss, health problems, or natural disasters. Experts recommend funding this account with at least three to six months of living expenses.
The suggestion that you would have an extra three to six months of living expenses may seem laughable to you – but don’t let the impossibility of such a huge number deter you from starting to save. Set aside a percentage of each paycheck, 10% is a good benchmark, but as little as 1 or 2% can make a difference, until you’re fully funded.
5. Plan for Retirement. You don’t have to be an investment genius to benefit from early retirement planning. With the help of a financial planner and some knowledge of basic retirement funds, namely 401(k)s and IRAs, you can enjoy the exponential growth of compound interest over time. The key is to start now!
Keep in mind that you don’t need to address these issues one at a time or in this specific order. For example, many find that it is best to tackle a couple of items at a time to make strong progress towards their life goals. The best plan for you should be specific to your life, so prioritize what is most important to you and make a commitment. You will see exciting changes sooner than you realize!