Ah.... your first pay cheque. Finally, the key to financial freedom to do and buy anything you want.
Feels great to be making your own money where you can spend it the way you want. But with earning a living now, you should be asking yourself some important financial questions that have nothing to do with “What should I buy for myself this month?”
It’s all part and parcel of adult-ing – being savvy about your finances. Of course you can give yourself a treat once in a while; you did after all work very hard for it.
But a savvy fresh grad knows it is more important to plan and build your finances for your future, which can involve you wanting to put down a downpayment for your first home... or if you suddenly find yourself without a job but bills to pay.
Where do you start? With these five financial tips.
#1 Build your emergency fund
In your first year of employment, you should strive to save enough to last you for three months without working. Because you never know what kind of emergencies might come your way, like unemployment, medical emergencies or a financial setback. The fund ensures that you have money to cover these emergencies without going into serious debt.
How much should you save? At least 20 to 25 percent of your pay cheque – and this is after deducting your monthly commitments like rent, car repayment, insurance. Here’s a gem from Warren Buffet: “Spend what is left after saving instead of save what is left after spending.”
#2 Don’t live pay cheque to pay cheque
It’s easy to spend everything within a month and then wait for the next salary to roll in... only to spend it too. What happens when you do this? You don’t have that emergency fund stash and plus, you are putting yourself in a serious financial time bomb in case something happens that requires you to have access to backup money (for example, your car needs some repair works).
#3 Pay off whatever debts you have as soon as you can
It will take a while for a fresh grad like you but the faster you set money aside to pay off loans like student loans or credit card debt, the better you’ll be financially. Once your debts are cleared then you’ll have more money to save towards something big like property.
#4 Got a credit card? Pay on time!
Late payments result in you paying for unnecessary interests which can go towards your savings instead. Plus, it affects your credit score, which can be a problem when you’re trying to apply for a housing or vehicle loan.
One more thing super important about credit cards – you’d be tempted to use the cash advance feature. Our advice? Don’t. If you have to “borrow” money by charging things on your credit, it basically means you don’t have enough to get it in the first place. Live within your means, not swipe as you like!
#5 Resist trying to be like others
So a friend bought that latest phone. You’re tempted to do the same but that means dipping into your emergency fund or using your credit card to pay for it first.
Another friend got a swanky new ride? You can have one too but that means selling your current ride to get this ridiculously expensive one and then taking some funds from your emergency funds to cover the expenses or having a bigger loan.
The top rule when it comes to finances? Spend within your means. If your friends are constantly eating out and driving nice cars, you don’t have to do the same (otherwise you’ll deplete your savings for some imported coffee!). Always ask yourself if you need it and if dipping into your savings is worth the product.
Photo by Sabine Peters on Unsplash