One of the most exciting moments of everyone's life is to enter the real world as a young adult. Finishing your studies, getting your first full-time job and venturing into the workforce is always an important step that everyone remembers. This means the beginning of adulthood and the fact that he is no longer a "child". However, for many, the excitement fades quite quickly and you are faced with one of the harshest realities of adulthood: managing your own finances.
Why is it so difficult?
Why is it so difficult?
Know your net income.
When you get your first job, you will receive a salary offer. Let's say you make $20 an hour, or about $40,000 a year. Does that mean you'll bring home just over $3,300 a month?
When you receive your first pay slip, you will see that many expenses are deducted from your salary, such as national and federal taxes, social security income and health insurance (to name a few). This can represent a very large percentage of your gross salary, on average 25%. It is important to know what your actual net or net income will be in order to establish an adequate budget.
Understand all your expenses.
Living away from your parents for the first time can be a real revelation. You're starting to realize how many things you actually have to pay for that you didn't necessarily think about before. Make sure you understand what all your expenses will be, from big expenses, such as rent, to small ones, such as toilet paper. If you're trying to figure out how much you need to spend on rent, a good rule of thumb is 30% of your gross income, but it also depends on where you're going to live. If you are in a big city, this figure can be much higher.
Also think about your food costs, which will probably be your second most important expense. If you've never had to shop before, a good first step is to go to the grocery store with a list of necessary items you need to buy each week. This will give you an idea of the cost of each item, which will allow you to set a better budget for the future. Keep in mind that all the little things add up and your budget should be as detailed as possible.
Be organized, follow up on everything.
One of the most important things to manage your finances is the organization. You just have to keep a good look at everything that's going on. Once you've done so, you'll have an accurate overview of your expenses and what you should reduce. Many people forget the little things, like your daily cup of coffee, but a small expense like that can actually accumulate in the long run.
Make sure you write everything down. The easiest way is to run a spreadshee in which you enter your expenses. Tools such as Mint.com are also very useful because you can integrate it into your bank and credit card accounts to help you track your purchases.
Save, Save, Save
Being alone for the first time is really exciting and there will be a desire to do everything and spend it all. But don't forget that it's important to live within your means, because if you don't, you'll get into a lot of trouble later. Start working out good financial spending habits now. Be the bulk of your budget for saving and saving, and the small budget for discretionary spending.
Start building an emergency fund as soon as possible, because you never really know what can happen in life. It's never too early to start thinking about retirement either. Thanks to the power of compound interest, the earlier you start saving for retirement, the later you see it.
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Some tips from a middle-aged man who has achieved financial independence (i.e. I can live alone from my savings for the rest of my life) at age 40: prioritize your expenses - the most important things are to start with contributions at least equal to your employer's and put the maximum in your account. Unlike income tax, FICA and health insurance, these "deductions" are entirely your responsibility. Don't make the mistake of assuming that, since the default is zero for these deductions, you don't need them.
Understand that what you can spend safely on your living expenses is less than you imagine when you look at your turnover. For example, I think 30% of the gross rental income is too high. Find a cheaper room or share housing. Similarly, I would not buy a car that costs more than three months of gross salary. This last sentence of the article is critical: everything that is spent today loses its capitalization power, so that what you buy today costs much more in future retirement dollars.
Saving extra dollars is far from useless - anything you put aside today means you'll reach the finish line (the freedom not to have to do a job you may not like) sooner. If things fall apart in the future, your nest egg is your safety net. If things look good in the future, your nest egg gives you the opportunity to take high risks and earn significant rewards.
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