10 Ways to Get Your Financial Journey Started on the Right Foot
- Get a job.
- Yes, this should go without saying. However, the importance of making a decent income cannot be understated when working to eliminate debt or build savings. With so much attention going to cutting costs and living simply, it is worth looking at from the other side. Getting a raise can make as much or more of a difference as cutting coupons and never eating out. Think about if the time you used figuring out how to spend less would be better allocated figuring out how to earn more. If you are having difficulty getting a job at the company or in the salary range you desire, make yourself more valuable by adding new skills or even sticking it out longer at your current job to gain experience. Bottom line, you are going nowhere fast if your income is not outpacing your spending.
- Get a bank account
- Open a checking and a savings account. Again, this is extremely elementary but also noteworthy. Any of the big banks will do if you only need it for basic features. You can also set it up for free at most places and waive the fees if you keep a minimum monthly balance or set up a direct deposit. My current bank offers easily manageable online banking, a checking and savings account with no fees (I use direct deposit), mobile check deposits, and great service. A lot of the big banks may seem similar, but you want to feel comfortable with the people who hold your money.
- Get a handle on your credit cards
- If you are paying interest from unpaid credit card balances from month to month, cut up your credit cards and throw them away. Now. Seriously. If you are not wise or disciplined enough to pay off your balances each month, you do not deserve to have a credit card. In an article published last year by creditcards.com, they reported the national average percentage rate (APR) was 15.05% but can go into the high 20’s for those with bad credit or instant approval. WOW! People are paying an astronomical premium to borrow money for things they cannot afford anyways. Do not be one of these people. I say it would be best not to use credit cards at all until you have your whole financial situation under control. Say you are having trouble paying back your balances but your excuse is you want to build up credit. The main reason why good credit is important is so you can get a good rate on a loan you take out such as a mortgage, or car loan. If your spending is so out of control that you are paying interest on your credit card balances, what makes you think you are ready to buy a house?? I am not saying credit cards are always bad, but there is a point when it is not worth the danger for certain people.
- Get used to your debit card
- You may have heard about the great debate of “cash vs. card”, weather it is better to pay for every day expenses with actual cash or using your card (debit, in this situation). I lean toward the “card” side for the following reasons. In the journey to becoming financially free, knowledge and information is key. I have found tracking my spending has been very important to learning about myself and adjusting my behaviors to reach my financial goals. While you could incessantly save your receipts from every transaction, using your debit card will allow you to easily see everything on your bank statement. Every purchase is there as cold, hard evidence. I usually try to keep some cash in my wallet just in case, but I always find a way to spend it on something I usually do not remember anyways. There are plenty of arguments for the “cash” side, but I have found that using my debit card is the best way to track my spending and keep myself accountable.
- Get automatic payment with your monthly bills
- Most companies allow you to sign up for automatic payment these days, and it would behoove you to take advantage when they do. Some examples of things I get automatically billed for are my cell phone bill, car insurance, and all my student loan payments. If it has to be paid for every month one way or another, make it automatic. It takes out all the work of having to remember and ensures you will never have to pay the dreaded late fee.
- Get organized with your spending
- Weather you use excel or a pen and paper, know your monthly spending by tracking literally every single purchase you make and see how you are doing. I have categories for my monthly bills, gas, grocery, entertainment, and other random expenses. This will be especially helpful if you are beginning your financial journey or trying to identify ways to modify spending habits. It can definitely be an eye opener and motivational piece if you feel like you are struggling, but then realize you spent over $500 eating out in the last month. The point of this is knowing where your money is going and what you prioritize.
- Get your loans in order
- I am just going to assume you have some sort of debt. It can get difficult to manage and make the best decisions when there are a number of loans from multiple sources with different repayment start dates, terms, and interest rates. So, a key to getting on the right track is to find all the necessary information to organize and prioritize your loans. If you are in a situation where you anticipate having difficulty paying back the default amount, visit the website of your debtor to learn about alternate payment plans. It is not ideal, but I opted for a couple alternate plans myself because I was not able to afford the regular amount when I first ended my grace period. I chose a graduated plan where I started with lower monthly payments that would slowly increase every two years until the loan was paid off. If sticking with the minimum payments, I would ultimately end up paying more with interest, but I knew that once I got a better paying job I would be able to pay more than the minimums to make up for it (which I am now doing). I know it can be scary, but step 1 to paying back your loans is knowing what you are up against. Find out the amounts, interest, term periods, payment minimums, and grace periods. Some debtors may even lower your interest rate if you sign up for automatic payments through your bank account! Isn’t that fun how these are connecting?
- Get your 401k started
- If your employer offers a 401k and has any kind of investment match, begin contributing at least as much as the match. The way this works is, based on your retirement package, a company may put in a predetermined amount into your 401k if you also put in a certain amount. For example, if you were to put 3% of your pre-tax salary (or post-tax for a Roth) into your 401k, the company may also match that same 3%, thus doubling your investment. Take advantage of company matching because if you do not contribute, the “free” money that would have been added to your account is left on the table. When you do contribute, you get the money added for later. Find out what your company offers.
- Get some priorities/goals
- What do you want in life? Do you want to work at your job forever? Do you want to retire? Do you want to set up an emergency fund first? Pay back your loans? Build a nest egg? Everyone envisions their future differently and has different values. These values will determine the steps you take to get there. Right now I am working on all 3 (retirement, loans, emergency fund) by slowly increasing retirement savings each year, paying back the highest interest loans first, and adding a bit to my emergency fund each month. Know your priorities and model your behavior to align with them. Also, write out some of your goals. It’s ok if they change over time, but it is hard to plan for the future if you do not know what you are aiming for.
- Get real
- Often, what people really need is a swift kick in the butt sometimes called a reality check. If you do not know how much debt you have or when it is due, credit card balances higher than you can pay back, no retirement savings, or are passing up on 401k matching, take a step back and realize you may not be taking you and your family’s future serious enough. The dangerous thing about many financial decisions is it often takes a while to feel the effects. Saving only $5,000 a year now may not seem like much, but in 40 years, each year you put off at the beginning could make a difference of 10’s or even 100’s of thousands of dollars. It’s easy enough to take out loans to cover your college tuition or a brand new car, but it won’t feel as good when you are paying it back into your 30’s and 40’s when you would rather be saving for a house or traveling. Take a look at your financial situation and accept that you may need to change a few things. Don’t regret, get started.
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This is great advice for all people and especially young people. Financial security is a journey and starting young makes the end point easier to attain.
Getting your credit cars under control (that is no balance at the end of the payment period), is paramount. But, once that is done find a credit card that oftens rewards like cash back or miles and use it for some purchases. The key is being disciplined to pay it off at the end of the period without fail.
If a store you frequent offers a discount for using their card (the Target Red Card is a prime example), get one and use it.
I agree, there are a lot of positive uses of credit cards when you use them the right way (paying them off every month). Thanks so much for visiting and for the comment!
Also I love the Red Card!