Your 20s is a turbulent time, as you transition from school to the “real world.” College grads start off their careers, move to new cities and work at low-paying jobs. Combined, these things make for a stressful financial situation. When it comes to students and money, it’s important to plan early. If you make smart financial decisions while you are young, you will set yourself up for a lifetime of financial success.
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Make a Budget
Take account of all of your sources of income and your fixed expenses (rent, utilities) and variable expenses (eating out, vacations). Once you get an understanding of how much you are bringing in and how much is going out, decide on a target expense amount for each category and make adjustments as needed. Be sure that your expenses do not go over your monthly income and leave you extra money for savings.
Set Savings Goals
To set savings goals, identify your short-term goals, such as moving or taking a big trip, and also consider your long-term goals, such as having a child or buying a house. Once you have an idea of what you plan to do financially, you can start saving accordingly.
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Instead of leaving your money in a checking account, comparison-shop for CDs (a certificate of deposit) or savings accounts to earn more interest. It is also crucial to build a financial cushion in case of an emergency such as losing your job, a natural disaster, car issues or a medical emergency.
Save For Your Retirement
Even though you are just starting out, you still need to plan for your retirement. The earlier your start, the more your money will compound and build upon itself. Invest in your company’s 401K plan and make sure to maximize your company’s match amount so you aren’t walking away from free money. If you don’t have a 401K, then open an IRA that also defers taxes like a 401K.
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Make Smart Investments
After you pay your monthly expenses and set aside savings, you can use the remaining money to make smart investments. Note, if you have high interest debt, you should pay that off before investing since you can’t guarantee the market can earn more than your interest.
Invest in things like stocks or mutual funds that provide more diversification. Every person’s financial profile is different, so be sure to consult with a trusted financial advisor if you are unsure about what to do. Keep in mind that as a young investor, your goal shouldn’t be to make quick investments to sell off quickly, rather take advantage of the time you have and make investments that will grow exponentially over the years.
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