By The early career years are crucial for building sound money management skills and avoiding excessive spending. If someone has recently begun their career, they can consider these tips to help them get started with better money management.
Create a monthly budget
Budgeting is essential to financial planning in the early stages of anyone’s career. Using a budgeting app or creating a spreadsheet can help track monthly expenses. Creating a budget consists of listing monthly income from all sources, including any side hustles or part-time jobs, and then listing expenses like rent, groceries, utilities, and gas.
Once the total monthly income and expenses are listed, subtract expenses from the income. The amount left over can then be contributed to savings and discretionary spending.
Budgeting is not one-size-fits-all, so the budget can be adjusted as income and expenses change over time.
Start a retirement plan
It’s never too early to plan for retirement. Consider a tax-advantaged account like a 401(k) or IRA to help build up retirement savings. Contributing to a 401(k) may reduce a person’s taxable income, and their employer may match their contributions. Employees should review their employment benefits closely to see if their employer offers retirement savings benefits.
Pay off debt
Debt, like personal loans or credit cards can weigh a person down at any stage of employment. Below are a few methods to help someone pay off debt to get a fresh start on their financial journey.
Debt avalanche method: The debt avalanche method involves prioritizing the debt with the highest interest rate and making minimum payments to other credit accounts.
Snowball method: The debt snowball method calls for repaying the smallest debts first. Successfully paying off small debts can help motivate someone to continue paying on more significant debts to get them closer to debt-free.
Debt consolidation: If a person is paying a high interest rate on multiple loans, they may want to look for better rates through a debt consolidation loan. A debt consolidation loan effectively replaces multiple loans with one that may be easier to manage and repay, especially if the interest rate is lower.
Balance transfer: Allows borrowers to move their existing balance to a 0% APR credit card, helping them pay down debt without accumulating interest. However, it’s important to keep in mind that most issuers charge a balance transfer fee, typically 3–5% of the transferred amount.
Start an emergency fund
An emergency fund is an amount of money set aside for financial emergencies such as unexpected medical bills or loss of income. Life changes such as layoffs, accidents, and property damage aren’t typically expected, but creating a rainy-day fund can help prepare someone to get through those rough patches.
Setting aside an affordable percentage of monthly income, such as 3%, or saving a weekly dollar amount like $10 or $20 can be extremely helpful. It doesn’t matter if the amount is small; the idea is to create a habit and ensure no frequent dips into the emergency fund. The savings can be transferred to a separate savings account manually or by automatic transfer for convenience.
The Bottom Line
Grasping personal finance as a young adult stepping into the workforce can be a daunting experience, but with the right tools and advice, it doesn’t have to be. Budgeting, saving for retirement, and setting up an emergency fund are habits that will put any young adult in good standing.
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