Keeping personal finance top of mind can be a tedious task at times. How many of us have purchased and not really thought about what we are buying or how much we are spending? Or looked back at our purchases and realized half of our earnings were spent on miscellaneous items? I’ve been there and thought to myself, “How can I be spending this much?” As a young professional, I wanted to be smarter with my money and make a change, so I took six steps to improve my personal finances. Here are the steps I took and what I learned along the way:
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Pay off Debt
Debt. Yuck! While we all try to pay off our credit card balances as soon as they are due, sometimes the best we can do is pay the minimum. If you are backed up in debt, The Good Men Project suggests consolidating your credit card debt to one credit card so you can pay more debt off without having to worry about paying interest to multiple lenders. Another tip: Making payments on your debts every two weeks instead of once a month will help lower your balance and help you pay less interest. Lastly, set up a system to track your debt repayment and personal finance performance to track your progress. You can use a tool like Quicken to manage your finances. Use this tool to view your credit card accounts, banking, retirement, and stay on top of your spending all in one place.
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Save for Retirement
As young professionals we have the greatest gift: time to save. According to Forbes, one of the most important things that young professionals should keep top of mind is their retirement savings. If your company offers a 401K match benefit, it’s highly recommended to max it out every year if you can - hey, it’s free money! Other great alternatives are IRA or ROTH IRA accounts, which you can contribute to a little bit each month making your money more valuable with accrued interest over time allowing a good savings available for you when you need it. Another way to save for retirement is by investing. You can invest your savings using an investment platform such as WealthSimple, and start with as little as $1. By investing your savings accounts, they become more valuable with interest over time.
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Stay on Top of Taxes
At the start of each new year I create a new file folder so I have a spot to put tax documents during the year and don't have to search around for tax documents when it comes time to do my taxes. Sofi recommends knowing your file-by deadline and filing early if you can. The earlier you file, the earlier you get your taxes done for the year. If you have a bookkeeper or CPA, awesome! If you are looking to file your taxes yourself know that there are free options available. The IRS offers free Volunteer Income Tax Assistance (VITA) for people who make $54,000 a year or less. Also useful is the Free File Alliance and TurboTax Live Basic which provides free tax-filing software.
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Have an Emergency Fund
If 2020 has taught us anything, it’s the importance of a rainy day fund. It’s recommended to have a savings fund with at least three to six months worth of living expenses. Discover says that keeping an emergency fund is important for covering unexpected costs such as medical bills or car trouble. As busy young professionals, an easy way to build up that emergency fund is by automating money transfers from a checking account to a savings account so savings accumulate over time without having to think about it.
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Create a Budget
Creating a budget is a good stepping stone towards reaching your financial goals. Using budgeting tools can help you create a budget and stick to your spending plan. There are a variety of tools you can use like spreadsheets or even a simple pen and paper; however, if you are looking for efficiency a budgeting app may be the way to go. Apps like Mint are great for connecting multiple financial accounts and categorizing spending. The payment tracker also includes a bill reminder and tells you how your spending affects your financial goals.
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Establish Good Credit History
If you’re already using a credit card and have established credit, you’re on the right track! If you have not established credit yet, not to worry. It doesn’t take much to get you started. A FICO credit score tells an insurer how likely you are to pay your bills on time. Your score can range from 300-850 with a good score ranging from about 670-799. Your FICO score is broken down by the following factors: payment history, amounts owed, length of your credit history, and new credit. If you don’t have a FICO credit score, you’ll need an active credit account for at least a six month period. Having a good FICO score can save you money over time when it comes to taking out a major loan because you’ll qualify for a low interest rate. You can use this FICO score estimator to estimate your FICO score range.
Personal finance is one of the most important aspects of ensuring a secure financial future. Keeping yourself in a good financial standing can reduce stress if an unexpected emergency happens, or you decide to make a life or career change. It is never too late to start building your financial foundation. How will you start to strengthen your personal finance?
Hanedi is a communications and media professional specializing in digital media and oral and written communication. She is a current volunteer on the communications committee with Metro EDGE where she assists with the blog and graphics. She hopes to contribute more as she continues to grow with EDGE.
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