If you are just starting that first full-time job, there is probably a lot of good and bad emotions going through you on a daily basis. On the one hand, you have finished college and now are making a substantial income for the first time in your life that you can start paying your own and not relying on mom and dad for those discretionary items.
On the other hand, you likely are trying to pay down student loans or maybe some other debt you have financed to get you through the best years of your life. It’s important when you are young you develop good financial habits so that your money is sustainable and contributes to all your life goals. So here are some tips that you should always keep in mind.
The most important thing to do is always have cash sitting in a bank account, regardless of however much money you have and whether it’s invested or in real estate. The reality is that life happens and if an emergency such as a broken appliance or speeding ticket happens, you have some cash to keep you covered. It’s bad practice to always just put every event in life on a credit card.
No one wants to go through life always owing somebody something, especially when it’s a large amount of money. Whether it’s student loans, car payments, or even a mortgage, the pain of life is always in the form of using your hard-earned money to pay someone else. So when you are young and dealing with some large debts, you will want to make sure you are attacking these liabilities intensely, so they can leave your life and allow you to focus on building your wealth.
Getting out of debt is one part of the equation, but another part is knowing how to not get back into it. It’s good that when expenses are low and debt is not consuming a lot of your income, that you save a good amount because you never know when there is a time you will need that money to cover something. More importantly, it’s important to learn how to budget for yourself, so that you never have to worry about living beyond your means.
Many companies who hire you will have some sort of traditional retirement plan and/or pension, and they will usually you require to contribute some sort of minimum. It’s easy to not think about your future self 40 years down in your mid-20’s but the reality is time invested is way more important than the amount of money invested.
So make sure you are able to start putting a significant chunk of your money into retirement after you’ve eliminated a lot of your debts and saved up enough money for insurance purposes.
It’s important that as you obtain assets in your life, you ensure that they are protected in the instance the worst-case scenario occurs. This includes things such as life insurance, health insurance, and auto or motorbike insurance. Eventually, as you purchase a home and other property, you will want to obtain insurance if its value is significant enough that it will be difficult to replace. Alternatively, you’ll want to assess things that you are more willing to take a loss on or pay out of pocket if you wish to, that way a huge chunk of your income is not going to premiums. Keep in mind your best insurance policy in some cases is cash in your savings account.
As you get older, you will find that if you are successful with money as you reach your 30’s and 40’s, you will be sitting on a lot of cash and other assets, and your only remaining debt will be your mortgage. While you want to be able to enjoy your life and live comfortably, you’ll want to make sure that you don’t become house poor and that your mortgage consumes too much of your income. Live in a reasonable house and take out a 15-year mortgage that you can pay down faster and even put extra to become debt-free sooner.
You will find that if you adhere to a lifestyle where you live well within your means, you can save and invest, and you can eliminate your mortgage sooner than later, that you will reach a point where you will feel in charge of your income and can do whatever you’d like with little stress. Take those vacations or give to charity, or maybe even save up a little money to pay cash for a slightly bigger house. Learning principles early will help you cash in a rewarding fiscal lifestyle as you get older.