It feels amazing going from being a broke college student to a young professional making “the big bucks”. Life really is good; you can enjoy experiences a lot better knowing you have a nice four to five figure paycheck coming in every two weeks.
But let’s keep one thing in mind, you probably aren’t rich.. yet!
Although you may be a smarty pants when it comes to books, that doesn’t always translate to being smart when it comes to managing your finances unless obviously you studied finance.
Depending on your field of study usually your starting compensation should be reasonable. This new money allows you to still enjoy the finer things in life but also manage your money and plan for the future.
Enroll in 401k or Retirement Account
First things first, make sure that you enroll in your company’s retirement plan if they have one. Most companies do and most commonly this will be in the form of a 401k.
Take advantage of this, and of the match rate that your company provides. This could set you up very well in the long run for retirement, plus its free money from your company!
Why wouldn’t we want to take advantage of this!?
Live Modestly
Second, don’t fall into the trap of having this misconception that you are rich. It’s important to plan for unexpected events.
Live modestly, in other words live below your means. Keep broke college kid mentality for as long as you can. Trust me it’s easy to want to live fast while you’re young. Even I have fallen into that trap by financing a newly used car that I’m still paying aggressively on.
If you have a car that’s paid off already or close to being paid off, my advice is to drive it until the wheels fall off! You don’t realize how much money you’ll save by not taking on additional payments.
Instead use that additional money to pay down student loans and other debts quicker or better yet build that emergency savings.
I’m not saying you can’t have fun, but I’ll tell you what isn’t fun. Losing your job and not having anything to live off. Or having to dig into debt to fund a medical emergency.
I’m sure it would feel much better not having a student loan payment due each month and $10,000+ stashed up in a bank account for a rainy day.
All this can be achieved by just managing your funds. Find a budget that works for you, you can make your own or find plenty free ones online including The Millennial Ticket Budget.
Track all of your expenses for the month and give yourself an allowance to spend on things that you want and activities that interest you.
There are many different rules of thumb but one I personally follow is 65% of my monthly salary goes towards bills, debt repayment and other monthly reoccurring expenses, 20% goes towards saving and investments and 15% goes towards my spending.
Give yourself a reasonable amount each month to spend because the last thing you want is to save too much and find that you keep reaching into your savings account to fund spending.
This could either mean two things either you’re spending too much and need to control yourself or you aren’t giving yourself enough to spend. So be reasonable with yourself, everyone is different, and it may take some time of trial and error to find the perfect balance for you.
Just remember your savings account should be a one-way street money goes in and doesn’t come out unless it is for an emergency (i.e., car breaks down, medical emergency etc.).
Invest
Last but most definitely not least, make sure to leave room for investing, this is probably the most important thing you can do as a young professional.
INVEST YOUR MONEY! I’d recommend opening a brokerage account such as with Fidelity and invest in index and mutual funds. Invest early and invest often, the earlier you invest the more thankful your older self will be.
Investing in a market that consistently gives returns of 7% or better is a lot better than having money sitting in the bank, not growing, and losing value due to inflation.
That’s not to say having an emergency savings is bad. An emergency savings is liquid and provides you with cash now in case some emergencies were to arise.
Life happens and it’s not a matter of if you’ll need it, it’s a matter of when.