As a young professional, you may be eager to jump into the world of financial independence. You are now making your own money with the knowledge and skills you have acquired during your educational years. The time has come to work towards your life’s ambitions and goals.
Plans on how to manage your very own earnings are underway. Now that you have entered the world of professionals, you may be planning on settling past obligations and moving on to new decisions. It is now your chance to plan your future, and this article will present habits that can help you reach both your short-term and long-term goals while maintaining your financial wellness.
Create and Follow a Budget
Now that you’re regularly earning money, you would be interested in ensuring that it’s enough for your regular disbursements while still having a sufficient amount of savings. In order to do this, a budget is advised.
List down your estimated spending for your periodic needs. How much do you usually spend for necessities like groceries, bills, fuel and medication? What are your other regular disbursements? Set aside an amount for these, as well as possible expenses for supplies, loan payments, and insurances. Make sure you are prioritizing your essential expenses to your discretionary ones. Luxuries like hobbies, gadgets, and nights out can wait. It is also advantageous to set aside your savings in advance. You may also want to divide it into several subsections, like for general savings, an emergency fund, retirement, or for specific projects. You will find that budgeting out your savings before expenses first will actually allow you a higher remaining balance, especially if you have an excess left from your regular spending.
The crucial part in budgeting is not creating it. Instead, maintaining it is the key. Learn to practice self-control. Cut down costs and unnecessary spending. Delay gratification and set goals on improving your money saving habits. For example, if you are easily tempted when window shopping, take time to think of three reasons why you don’t need to buy that item.
Have an Emergency Fund Ready
This was mentioned in the previous section. But what exactly is an emergency fund? An emergency fund is a portion of your savings set aside for unexpected and unwanted circumstances. Think of it as your contingency fund. It’s not a fund where you take out money when you don’t have enough to pay for a new iPhone. Instead, it’s where you’ll be getting the money needed to pay for sudden expenses like hospitalization, sudden car trouble, funeral fees, and litigations.
You’ll never know when an accident or illness may befall you or a loved one. You can’t possibly prevent a typhoon from damaging your roof, warranting the need for repairs. Having an emergency fund will help unburden the load of such worries without compromising your regular lifestyle or forcing you to sacrifice your hard-earned savings.
It is highly recommended that you separate your emergency fund from your other accounts in order to avoid accidentally spending it. Ideally, an emergency fund is 3-6 months worth of your expenses to make up for lost income in case you unexpectedly lose your job. Therefore, it is wise to know how much you exactly spend for daily as well as monthly expenses in order to know how much you need to save up for.. Additionally, make sure that your fund is readily available and easy to access to avoid difficulties when an emergency does occur.
Start Saving on Retirement
It’s never too early to prepare for retirement. Even though retirement is a few decades away, a long, healthy life would require you years and years of living expenses. The concept of compounding relies on time. The earlier you start investing, the more likely you’ll be able to reach a desirable amount for a more comfortable retirement It could come to a point that employment is merely a choice of passion or interest rather than a necessity. Now isn’t that a pleasant thought?
Additionally, investing in retirement allows you to save up on taxes. Contributions to a tax advantage account will reduce the amount of your taxable income. If you’ve opted on investing on a retirement plan under your employer, it will also protect your from taxes unless you withdraw the amount. Employers may also make an equivalent contribution to your retirement plan. You might want to consider asking your company if they offer this incentive for employees.
Keep Tabs on Your Taxes
Taxes don’t come all year round, that is why you may tend to lack notice of it. Avoid panicking during tax season by keeping tabs on your taxes. By familiarizing yourself with tax reduction schemes applicable to you, you are reducing your costs and the likelihood of tax debt. Understand your income tax situation and make sure you are paying the correct amount. You wouldn’t want the IRS to come knocking at your door someday.
Be aware of earned income tax credit. There are deductions available for earners/taxpayers who are married and are supporting dependents. If you are one of those people, take advantage of the right to claim it as it cuts down taxable income by a significant amount.
If you are making $45,000 or less, you are also eligible for Saver’s Credit. It allows up to $1000 of tax credit when you contribute to an individual retirement account (IRA) or an employer’s 401(k). Again, another reason to invest in retirement.
There are also several tax deductions you can apply for, out of normal transactions. There are deductions available from paying off student loan interests, making charitable contributions, Lifetime Learning Credit (advantageous to those pursuing further education or boosting their professional skillset), American Opportunity Tax Credit, job hunting expenses, moving expenses, and paying for mortgage interests. By researching on different loopholes, you are saving yourself a lot of money.
Watch Your Credit
The power of the credit card can be addicting. Without having to take out cold, hard cash, you can pay for transactions in a single swipe. Whether it’s buying clothes, groceries, a new appliance or gadget, or paying for restaurant bills, it can all be done by simply preventing a piece of plastic. But take note that the power isn’t immortal, and it could be costing you more than you have expected.
You may have applied for a credit card with a low introductory interest rate (or even none!). Remember that it has an expiration. Make sure you’ve paid for your outstanding balance before the low rates go, as well as learn to control your spending. You may suddenly find your financial obligations blowing up, otherwise. This could affect your credit rating, potentially discontinuing the service of your card or preventing you from applying for any service that requires your credit rating like loans, mortgage and even renting spaces, and worst, put you in a lot of debt.
The objective to effective credit leverage is being able to pay for your debt in a timely manner to avoid additional interest charges. However, if your present cash balance is insufficient to pay for all of your obligations, remember to prioritize your payments. Different cards and transactions have varying interest rates. Pay off high-interest transactions first, to prevent larger interest charges. Mortgages, student loans and car loans typically have lower interest rates, so paying them can be put off a little later compared to more urgent obligations. Additionally, these loans can be tax-deductible. So be wise and learn how to juggle the components together to make the most out of your credit.
In case you are already having trouble with tax or credit card debt, there are several debt relief programs available. A program like debt settlement will help you by taking your unique financial position into consideration in order to create a debt settlement plan within your means. By helping you save money quickly, debt relief programs assist in efficiently reducing debt, paying it off and eliminating it for good.
Where Do You Stand Right Now?
Are you in financial turmoil or are you at you towards financial stability? The key is not to waste any time making sure you are in the right track. With the right amount of discipline and a sufficient awareness on personal finance, these habits will help your financial freedom.
The above is a guest post from Rebecca, a freelance personal finance writer.