Money management is an important aspect of life and it is better to get started with it early on in life. With that in mind, there is no better time to dive into it as soon as you get your first job. For millennials and newly graduates, you have a lot to look forward to as the hiring trend seems to be on an upswing.
According to CNBC, employers are optimistic about hiring 5% more graduates this 2017 compared to last year. This comes off as a good news to almost 2 million expected college graduates this year. Companies are hiring and you are eager to work – seems like a perfect match. However, as you start to live independently on your own, it would benefit you to have a financial blueprint in managing your funds. Especially that you are doing everything for the first time. Here are a few things to look into.
Create a detailed budget
Even before you start mentally spending your salary in your head, it is best to have a detailed budget of your finances. At the onset, it is imperative to have control of your household budget. This gives you the chance to paint a clear picture of where you stand as far as your income and expenses go.
As you start to put together your initial budget, it is best to keep it simple to make money management a bit easier. You can start with your income. List down how much you expect to earn in your first job. It is important to take note that you should budget with your net income and not your gross pay. This way, all deductions are considered and you do not end up short.
Next on the budget line would be your expenses. It might be a good idea to split this into two. The first one is your fixed payments. These are the expenses that need to be paid out month after month without fail. It can include your rent or mortgage as well as utilities. This can also include your student loan payments which usually has a set payment amount.
The second list of expenses are the flexible ones. This can be food, entertainment, and even your shopping money. This is where you can make adjustments depending on how your income is coming in. Money management can mean taking a look at your expenses and determining ways to save money. You can buy food in bulk and batch cooks your food, cut cable and rely on streaming services to stretch your income.
Save for emergencies
Money management also entails trying to operate out of the red and one way to do that is to build up your reserve funds early on. According to a CNN article, you need to have at least three month’s worth of expenses for your emergency fund but a better goal is to target 6 to 12 months. This could be an intimidating amount at first but you do not have to have it all in one go.
The idea is to work on building up your reserve funds for a few months until you reach your goal. Try working backward where you start with the amount you need and divide it up into doable amounts each month. As you are able to save up the amount, the next thing you need to look into is where to put it.
One thing you need to remember with your emergency fund is that it has to be within arm’s reach. It does not mean that you keep it in a jar under the couch in the living room. You also have to consider safety as well as earning interest versus inflation. The best thing is to put it in a savings account that will earn decent interest and can be easily accessed when needed.
Be mindful of housing costs
One of the first things you could be looking at to assert your independence early on in life is getting a place of your own. It can be renting or buying a place of your own. Although it makes sense for young adults who are just starting out in life to rent in the meantime while saving up for a mortgage down payment.
Apart from looking for ways to save money on rent, you need to understand that the rent forms only a part of the total housing cost. You need to consider insurance payments, maintenance as well as other related costs. Be sure to factor all these when choosing to go forward in renting your own place.
Guard against emotional purchases
The smell of new leather seats or the feel of a new and shiny smartphone appeals to your emotional side and more often than not, it gets you to whip out your credit card or sign that loan application. These are some of the early financial mistakes people make that would haunt you for a long time.
It is quite a challenge to make sure that you are able to identify and overcome emotionally-drive urges to spend and buy things you might not even need. Take a car, for example, buying brand new versus second-hand units is a lengthy discussion. However, when you are just starting out, you would have an easier time with money management if you consider a second-hand car. It costs less and depreciation already levels out.
Money management means understanding your loan details
There is a big chance that as you step out of college, you have student loans and even credit card debt under your name. There is nothing wrong with this and in fact, school loans played a big part in helping you get that job you have at the moment. The problem starts when you start missing out on your payments.
One thing you can do to help you prevent this from happening and have an easier time in money management is to understand your debt better. This means knowing your payment details. Apart from the amount, you have to have a clear picture of your payment due date on your financial obligations.
More than the due date, you need to know about your grace period as well as fees and penalties in case you send in your payments late. You also need to know your lender and who to talk to in case you have questions about your loan. It is good to know as well how extra payments will be treated. If it can be used to lower down your principal amount or simply be treated as an advanced payment.
Have a money talk before settling down
Around this time, you could be looking at settling down with your significant other. As you plan this, you need to start talking seriously about your finances separately and as a couple. Individually speaking, you need to know what each of you is bringing into the marriage. This goes for both income and debt amounts.
It is not enough to understand how much each of you is earning. You need to list down whatever debt accounts you will be bringing into the marriage. More than this, you also have to be on the same page when it comes to long-term goals as this will affect how you manage your finances.
Money management can be a little tricky when you are just starting out but the earlier you get started, the better you become at it.