When you’re just beginning a new career, you’ve got a lot on your plate. Getting to know your new role, your coworkers, and all the other nitty-gritty aspects of a job you’ve started is a lot to handle for anyone. It can be easy to neglect the other aspects of adult life during this period, but you should try your best not to, if only to make your future self thank you.
Because a big aspect of your adult life is dealing with your finances. And that’s definitely not something you can push to the side forever.
For many, dealing with money is one of the most intimidating parts of adulthood. Especially so if you don’t have much of it—which, as a young professional, you probably aren’t working with hundreds of thousands of dollars.
But how do you even start getting a handle on your finances?
There’s no perfect formula, but we hope these 8ten steps can help you take stock of the money you have and how you can make it work for you.
However, it’s important to realize that general money advice is just that: general. These tips are meant to help you identify areas of your financial existence that you might want to pay attention to, but they are not meant to be your only guide to money. And so with that, we get to our first tip.
1. Understand that your finances are just that—yours
Many people will attempt to give you financial advice (including us), but it’s important to remember that advice on the internet isn’t tailored to you. When looking at tips for handling your money, think about what you think would work for you. Maybe try out a few budgeting methods or savings goals, but don’t hold onto any single method if it isn’t working for you.
One of the most important parts of learning how to work with your money is knowing at the end of the day, you know what’s best for you.
2. Start an emergency fund
The single most important financial advice we ever received was to start an emergency fund. So we’re sharing it with you, too.
An emergency fund is your go-to whenever you have a not-so-cheap problem in your life. This type of fund can help you out with everything from unexpected car maintenance, a surprising medical copay, or a last-minute trip home to care for a suddenly ill family member.
This type of fund helps you take the stress out of the question, how am I going to pay for that?
With an emergency fund, you’ll have the cash on hand for any and all emergencies you may face in your life (which ideally won’t be a lot).
If you don’t currently have this type of savings account, stop reading this article and open one now. Even depositing as little as fifty dollars will help you be one step closer to financial security in the event of a crisis.
As for how much you should keep in your fund? The amount will vary depending on your personal circumstances. But a good goal to start out with is around $1,000 to keep liquid (aka in cash) safely in a bank.
It might not seem like a top priority, but seriously. Open an emergency fund. You never know when you might need it.
3. Take inventory of what you have
A great first step in getting better at money is looking at the dollars that you’re working with. After all, it’s pretty difficult to tell your money what to do if you don’t know what you have.
Figure out the total of your monthly bills, your monthly income, how much money you’d ideally like to spend each month outside of bills, and how much you might want to save.
This is a pretty daunting task to start off with, so to make it easier, try just tracking your spending for a month or two. Tracking your spending will help you get an idea of what you’re working with and what a typical month looks like for you financially. You may be surprised by how much you spend on coffee each month.
4. Get out of debt
Debt of any kind is crushing. Whether that’s student, credit card, or personal debt, it weighs down more than just your finances.
When you’re just starting out in your new career, eliminating debt should be a top priority, after of course, establishing an emergency fund. There are a lot of different ways to pay off debt, but two of the most popular methods are the snowball and avalanche methods. Regardless of which one you decide to go with, the important part is just starting to crush your debt.
It might take a while, but paying off all of your past-due balances will help you step into a financial life where you and your wallet can breathe a little easier.
5. Figure out what your options are for saving
You’ve probably heard that saving is the most important part of handling your finances, and it’s true! But how do you actually do it?
Some people like to save at the beginning of the month when they get their first paycheck, others like to save at the end. While it’s up to you, we recommend making saving money one of your top priorities financially.
When looking at where to save, try to find banks that offer their customers high-interest rates for savings accounts. Online banks typically offer higher interest rates than banks with physical banks. Two great options with high-interest rates for customers who open savings accounts with them are Ally and Wealthfront.
Putting your money in an account that provides you with a high-interest rate can help you fight some of the impacts of inflation, which will eat your money away much faster if it’s sitting in an account with a low-interest rate.
And while you’re at it, take a look at the different types of interest rates that exist.
6. Take your savings to the next level by investing for retirement
If you’ve ever heard anything about personal finance, you’ve likely heard that building wealth is nearly impossible without investing for retirement. How much you’ll need to save on retirement will depend greatly on your specific financial situation, but it’s good to have some idea of the hard numbers.
Retirement might seem like a long way away, but you’ll have to do some preparation now if you want to be enjoying piña coladas on a cruise ship at 65.
First, you’ll want to talk with HR at your employer to see what retirement plans might be available to you. Most employers offer full-time employees some type of retirement plan like a 401(k) or 403(b). You can also choose to invest in your retirement yourself through a Roth IRA.
What the heck are these?
- A 401(k) is a for-profit company’s employer-sponsored retirement plan that will match the employee’s contribution amount up to a certain percentage.
- A 403(b) is a not-for-profit company or a government agency’s employer-sponsored retirement plan that also matches the employee’s contribution amount up to a certain percentage.
- A Roth IRA is an individual retirement account that allows you to invest taxed money that you can then draw from upon retirement tax-free. This type of retirement account is different from other individual retirement accounts because you can open this without needing support from an employer. However, there are also many different IRAs to choose from.
These are only a few retirement investing options available to you, but they are fantastic tools to use to set yourself up for a comfortable life after your career.
7. Invest outside of your retirement
Putting money away for the golden years should be a priority for most young professionals interested in personal finance, but it shouldn’t be the only way that you choose to invest your money.
Investing in the stock market outside of a more controlled environment that many retirement accounts can provide may seem a little scary, but there are a few general rules of thumb that you can follow to make yourself less volatile to changes in the market.
Most 401(k)s, for example, invest your money in mutual funds. These types of investments usually carry a lower risk factor because you’re combining your money with other investors to carve out little sections of ownership from the company together, rather than each rather each person buying individual stocks.
Mutual funds are similar to another lower-risk investment called ETFs, which are similar to the aforementioned investment except that they track a particular security which can include bonds, stocks, and commodities.
And of course, you can also choose to invest in plain old stocks.
However, keep in mind that any investment strategy (including traditional retirement accounts) comes with risk. You’ll likely lose money at some point if you intend to gain it.
As for where you can go to begin investing, the digital age has thankfully done away with the need for a middleman to complete your transactions for you. While choosing to invest can obviously be done with the help of a financial advisor, it doesn’t have to be done that way.
You can open an investment account today through a variety of online banks or investing-specific companies such as:
8. Create short-term savings goals
While saving for retirement is super important, it’s also good to prioritize short-term savings goals.
Do you ever want to buy a house? Need to get car repairs, or fly to Mexico to have a fantastic vacation? They’ll take a good chunk of money to fund, and you will want to make sure you have the cash on hand when the time arrives.
That’s why it’s important to set up short-term savings or sinking funds.
Sinking funds are the perfect way to help you prioritize those short-term expenses so that you will have them when you need them in one, two, five, or seven years’ time. Your sinking funds should typically be find themselves in a high-interest savings account instead of a low-interest account so that you can take advantage of higher rates.
One piece of advice to keep in mind: try to avoid investing your short-term savings in the stock market if you know you’ll need to take them out sooner rather than later. You want to be sure that you avoid the game of playing the market because you won’t ever win.
Getting a handle on your money can be tough, but personal finance is important for everyone, especially young professionals who are just taking their first steps in the real world. If you work to make your money benefit you, you’ll have a much easier time in the long run.