In Finance, Start as you Intend to Go On

canstockphoto9895017When you are just starting out on a career you can be forgiven for getting your monthly pay check, your sign of financial independence, and treating yourself to something you couldn’t afford as a student or before you had started working. It is important not to spend too much without giving some thought to the bills you may have to face in your new-found independence. Certainly you have a career ahead of you to recover from financial mistakes you make but surely it is better to avoid them in the first place?

Managing your finances may not seem too important in your 20s but it is good to develop good habits when you are young. Some parents even teach their children the value of money from a very young age, asking them to do a small chore to earn their allowance or save a little each week to buy something they want. Those children in their 20s will certainly have a financial plan so why shouldn’t you?

Your Student Loan

You can defer it but why should you? You will have to pay it in the end and what makes you think money will get easier in the coming years when you may want to buy real estate or start a family, perhaps both? Student loans may be regarded as good debt but it is still debt.

Start a 401(k)

The problems of retirement currently are being written about every day; the number of retired people who have insufficient in their retirement account despite having worked all of their adult life. It is up to individuals to save for retirement; Social Security benefits were never designed to do other than support retirement and the System is actually under threat due to insufficient funds.

The 401(k) has replaced guaranteed company retirement pensions. Employers will contribute up to a certain level so you should open an account and pay enough in each month so ensure you get all the ‘’free money’’ that an employer will contribute.

Even if you save just $50 a month in your early 20s you will have $125,000 at 65 with a fairly conservative growth rate of 6%. You are doubling your money every 10 years so if you delay until your early 30s then your account will have little more than $60,000.

Credit Card Debt

Students often use a credit card to subsidize student life. The danger is building up balances by only paying the minimum the card companies need each month under their terms and conditions.  The interest rate is high, much higher than online lenders do credit check and charge on personal loans. They should be used to pay off those balances with the cards then just used for convenience with the statement paid in full in the future.

Accommodation

You should try to have a plan but be flexible. Work may take you to a new city so there is rent to pay. Some stay at home while others share apartments. The ultimate aim may be to buy real estate because that is a medium to long term way to increase your assets. The main thing to remember is that you should never overextend yourself. You don’t suddenly need an expensive penthouse to yourself so put a limit on the housing costs you will face each month.

Your Credit Score

This score is a reflection of your financial history good and bad. Negative entries harm your score and any time you are late with a payment that is negative. If you have a poor debt-credit ratio, too much debt and too little available credit that will be picked up as well. Your credit score is used to judge your suitability for some forms of loans, especially mortgages but may also be a factor when you apply for a job. A good credit score should guarantee you get a competitive rate of interest on future loans rather than pay an extra point or two because your record is poor.

Financial Management is mostly common sense, that and some self-discipline. There will always be competing demands for your pay check but you start off right and put something aside each month to secure your future.