Starting out in the work word is exciting. The financial gains you make in your 20s will have a lasting impact on your lifetime earnings. It’s important to know what to do with the money you make to maximize it.
Here are a few smart money tips for people just starting out:
It might be tempting to blow your first paycheck on something big and unnecessary but you’ll fare better staying modest for awhile. Pay the necessities and then save the rest. It’s important to have at least 2 months’ salary saved in case you need unpaid time off work or lose your job. From there, save for things like paying cash for a car or building up a large deposit for a home.
Save for Retirement
At most workplaces, you can have your retirement savings pulled from your paycheck before it ever hits your account. Most places also offer an employee matching program that contributes dollar for dollar what you put in to a certain percentage (usually between 4% and 6%). Make sure you are maxing out your employee match. People who save significantly for retirement in their 20s have two to three times the nest egg of peers who wait until their 30s, and 5 to 7 times more than people who wait til their 40s. Put that money away now – you’ll be happy that you did later on.
Don’t just swipe your debit or credit card and figure out how to pay for everything later on. Create a budget and then stick with it. You should know exactly what you plan to spend before you head to a store, on vacation, or out to dinner. If you spend a little more than you planned, figure out where to save other places and work harder the next time to stay within your spending limits.
Learn to Cook
Maybe you can afford more than the Ramen noodles you ate in college but don’t blow it by eating out every night. Create a meal plan before you head to the grocery store each week and then premake meals and snacks. You’ll stay healthier and so will your bank account.
Pay Back Your Student Debt
If you pay just the minimum monthly amount on your student loans it will take you at least a decade to pay most of them off. A lot can happen in a decade. If you have plans to buy a house, or start a family, the money you have now will quickly get gobbled up in more “grown up” expenses. You will never have more disposable income than you do now; pay extra on your student loans and you’ll be glad you did later on.
Young professionals have the opportunity to set up a bright future for themselves. Take advantage by spending, and saving, smartly now.