If you are just graduating or getting started in the workforce, here are six quick and easy tips on how to get started on the right path financially. The younger you are when you start saving and thinking about the future, the better off you will be.
- Start with the end in mind. Where do you want to be financially in 5, 20, or 40 years? Don’t only focus on your immediate needs at the expense of your long-term financial future. Set goals, envision your financial future, and decide how you are going to make it happen.
- Live within your means. While you’re just starting your work life and you’re earning a modest income, don’t try to keep up with peers who may spend like there is no tomorrow. Live and spend within your means by keeping your long-term goals in mind. Learn the difference between “wants” and “needs.” Prioritize spending on your “needs” first, savings second (which includes participating in an employer-sponsored retirement plan), and “wants” if there is money left. Find friends whose financial values align with yours as the people you surround yourself with will greatly impact your spending habits.
- Create a budget and monitor it regularly. You can easily set and track a budget by using a budgeting website, app, or financial software. Most clients that reach financial independence ahead of traditional retirement are disciplined at monitoring this step.
- Pay off your debts. Interest never sleeps or takes a day off. It can be challenging to focus on long-term financial freedom when you all of your extra income is applied to debt. Focus on paying off high interest rates first, and once excess debt is gone, apply the extra money to save for future goals. If you don’t have the money, don’t spend it!
- Save. Plan for financial goals and retirement. For young professionals, the best retirement savings accounts are a 401(k) (or another employer sponsored retirement plan, such as a 403(b), SEP IRA, Simple IRA, or Thrift Savings Plan) and a Roth IRA. If you are self-employed, there are other retirement plans to consider. If you want to buy a house, new car, engagement ring, or pay for your wedding, start saving by setting a dollar goal for each major large item and build savings specifically for that purchase.
- Start now! Implementing healthy saving habits is easier at a young age. Also, compound interest and reinvesting of dividends can help provide more growth in your investment accounts over long periods of time. Time is on your side, so start early!
CCMI provides personalized fee-only financial planning and investment management services to business owners, professionals, individuals and families in San Diego and throughout the country. CCMI has a team of CERTIFIED FINANCIAL PLANNERTM professionals who act as fiduciaries, which means our clients’ interests always come first.
How can we help you?