It’s tough to know sometimes what you should be doing financially when there’s so much going on in your life. We’re constantly bombarded with all sorts of financial advice – from ads on TV, stuff our friends tell us, stuff so called financial advisors advise even our parents perhaps. There’s so much noise today that it’s tough to focus. So, I wanted to put forth 5 things you should be focusing on, and you can ignore everything else for now!

Spend and save less than you earn

Ideally you’d have a budget, but for some reason budgets really stress young professionals out, overwhelm us, or even bore us, and a lot of us don’t have a budget. Without a budget, we really have no track of our money and our financial strategy is based on ‘hope’, i.e. hoping we have enough to pay our bills and credit cards off when they come due. So, figure out how much you make each month. If you’re hourly or your pay is somewhat variable, figure out an average. Then, figure out your expenses. Add up everything you have to pay, like your rent/mortgage, car payment, student loans, utilities etc. Then, set a savings goal for yourself. Maybe it’s $100 or even $1,000 per month. Subtract your savings goal and your expenses from your pay. Voilà! That number is going to be the amount you can spend on: gas, restaurants, movies, clothes, and other normal things you spend money on.

Save for retirement and invest

Part of being a young professional is transitioning away from the mindset of spending every paycheck and actually starting to save and invest for your future. Perhaps you want to buy a house one day, or go back to grad school, or pay cash for a new car. You certainly won’t want to work forever; much less will you be able to work forever. One day later in life you’ll have to slow down or will want to stop working. Saving and investing is a critical part of heading towards financial success.

For retirement, contribute at least enough to get the full match (free money is free money) and then work your way up to 15% of your pay. 15% is the recommended amount and will keep you on track. Invest this money in a low expense fund, either split between large/medium/small/international, or a target date (i.e. I’ll be looking to retire around 2050 so I am heavily in a 2050 target date fund). 

For investing, once you are at a point financially where you have a little surplus, instead of putting it in a bank account that pays 2% interest, open a brokerage account and start investing in an index fund. 

Automate your savings/investments

If you have a 401(k) at work, definitely take advantage of it. That money comes out before you get your paycheck, and money not seen is money not missed. With your savings goals, setup an automatic transfer the day or two after you get paid. Cut your monthly savings goal in half, and save the first half right after the first paycheck and the second half after your second paycheck. Automating will avoid temptations to spend that money! 

Have insurance

Nobody likes paying for insurance until you actually need it. I’ve had a few insurance claims over the years – whether an auto accident or the time a tree fell through our roof. Insurance today is relatively cheap, so get car insurance, get homeowners insurance if you own a house (your mortgage lender will require it), and if you rent, get renters insurance. I’ve had several friends experience loss and renters insurance came to the rescue. As you get married and have kids, get a better life insurance policy. 

Monitor periodically

I know that the whole point of this article was to put your finances on autopilot and then forget about it. As young professionals we’re stretched pretty thin, and don’t have as much time or energy as we’d like to spend on our finances. Assuming you’ve followed steps 1-4, you should be in a good place and making good financial progress. As awesome as being on autopilot is, periodically it’s not a bad idea to check on things. For me, I do this once a month. I go through all my accounts and track my balances on a spreadsheet. For you, figure out a cadence that works for you. If not once a month, perhaps once a quarter, or twice a year. Just log in to your accounts and check on the balances. Make sure they are growing as expected and that inbound transfers are occurring as expected. Not only is this a good quality assurance check to make sure nothing bad has happened, but also it’ll be a feel good moment for you! Seeing your progress will further encourage you to keep up the good work!

Managing your finances and having good financial habits doesn’t have to be hard! Adopting a few good habits and putting them on autopilot is really all a young professional needs! 

Need a little more help? Get your hands on the YMF Personal Finance 101 guide to get you up to speed.