Save Early

Congratulations on your first job and paycheck!  Is it tempting to buy a room full of electronic gadgets and eat out nightly at your favorite taqueria?   Resist that urge and reward yourself with a couple of things, but then follow a few basic steps to get yourself started off on the right foot financially.  First, develop a budget for yourself.  A budget is a plan that shows your income and your expenses.  Some of your expenses are the same every month:  rent, phone, and electricity for your apartment or home are examples.  Some of your expenses may vary:  food, entertainment, gasoline, and savings for example.  If your expenses exceed your income, you are probably making a mistake financially.  Your budget should balance; that means your expenses match your income.  If your income exceeds your expense that is great, you may want to revisit your budget to add a miscellaneous category for unforeseen expenses or use that excess income to start a savings or investment plan. 

After you have a budget, set some short term goals for yourself that may take a few months to implement.  Starting a “rainy day” fund or emergency savings account is an example.  A “rainy day” is when things go bad for you financially; it may be better to use your savings to pay for a new set of tires, than to have to put it on a credit card and pay it off months later with interest.  Put a little bit of your paycheck away into a rainy day fund to get your savings started.  Shop banks for higher interest rates and lower fees; online banks that do not have to carry the cost of labor and brick-and-mortar branches are an option.  An automatic deduction from the account where you deposit your paycheck may make it easy to get started.   After your savings is up and running, set some more intermediate term goals that may take you about a year to complete.  An intermediate term goal may be to get your credit card paid off.  It is ideal to pay your credit card balance off at the end of each month, that way you are using the convenience of credit cards and building your credit score while also avoiding paying interest on your balance.  If you do not pay off your balance relatively quickly, interest that the credit card company charges you can cause your balance to grow significantly.  A $200 bike you bought in college is suddenly a $400 bike if you let credit card interest accumulate on your balance.  Your plan should be to pay more than the minimum amount the card company requires.  Another intermediate term goal may be to save for something other than a rainy day.  Maybe you want a new iGadget or need to save for a down payment for a car; save up for it over time instead of using a credit card and you will have avoided paying a credit card company’s interest.   Carrying large balances on credit can set you back many years so please be careful!

Finally, get started on longer term planning by participating in your employer’s retirement plan as soon as possible.  If your employer does not have a plan for you, put together a plan for yourself.  Start with a small amount so you can see how much your paycheck is reduced by the contribution you make to the plan.  Your employer may make a matching contribution to your retirement account, but will only do so if you are participating in the plan.  That employer match can make a big difference in growing your account balance.

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