You’re now on your own! But with the joy of freedom, comes the pain of responsibility. This is the time to assess your financial goals and take action to accomplish them. While every financial plan is different, here are some general guidelines you’ll want to consider to get started on the right foot:
- Organize your financial records – The best time to organize your financial records is now – when you’re just starting out. Set up a system for filing checks, tax returns, financial statements, debts, and other financial documents.
- Develop a budget and stick to it – If you can do this one thing, you’ll avoid many financial troubles. Take your net income (what you earn, less taxes) and subtract your expenses (from food, shelter, clothing, to entertainment, saving and giving). As a guide, housing, food, and auto expenses need to be 65% or less of your net income to balance your budget.
- Keep spending low – Watch your spending! “The biggest financial mistake I see is a consumptive lifestyle – simply spending more than you can afford,” notes financial expert Ron Blue, author of Master Your Money.
- Avoid debt (or get out immediately) – If you have debts, plan to pay them off as soon as possible – and remain debt-free. Financial expert Dave Ramsey recommends a “debt snowball”. This method reallocates payments for retired debts to existing loans until the payments become large enough to consume all debts.
- Put off buying a car – The cheapest car you’ll ever own is the one you’re driving now. Yes, it might cost more to maintain, but it beats high car payments. If you must buy, choose a good used car. Check your selection with a good mechanic before you purchase.
- Save – Set aside a percentage from each paycheck to save for future needs or desires like a new (used) car, further education, vacations, etc. And it’s never too early to begin saving for retirement. Check first with your employer’s 401k plan. If they match funds, you’ll get a tax break this year, and the earnings grow tax-deferred. In addition, experts suggest you set aside 3-6 months living expenses as a regular reserve in case of a loss of income.
- Prepare for misfortunes – Car, medical, and homeowner’s (or renter’s) insurance are musts. Check with friends or relatives for references on reliable companies and review your policies annually to get the best rates and coverage.
- Give – Allocate some money from each paycheck to your local church or charity. Giving not only benefits others, but it also helps keep financial things in perspective.
Congratulations! With these tips you’ll get a great start on managing your money for life.
Update: Time to link to the Beltway Traffic Jam.
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