Financial Checklist for Young Professionals
So, you’ve graduated from college and landed your first professional job. Could life be any more promising than it is at this exact moment? No more cramming for finals. No more scraping money together to go out with your friends. Spending your days in your career instead of preparing for it. Now that you’ve made it this far, what should you focus on next?
Enter the young professional financial checklist. If you’re not married and don’t have kids, then right now is probably the most financially free you’ll ever be. And if you put a little bit of money aside each month towards future goals, you’ll see the impact in a big way later. Do this and your 30-year-old self will thank you – profusely.
Financial Checklist: Set a Spending Plan
Wondering why I didn’t say budget? Because budgets are boring – spending plans are fun! Now that you have a salary, think about where you want your money to go. If you don’t track it, you may end up spending it on things you could care less about without even realizing it. So start with the amount you take home each month and subtract your bills. What’s left? And what do you want to do with it? I’m sharing some important options below. Once you allocate your money to the important stuff, see if you have any left over and start saving for more fun goals. You’re a lot likelier to make that dream of a month-long trip to Europe happen if you stick to a spending plan.
Financial Checklist: Emergency Fund
With spending plan in place you can now build an emergency fund. Whether the economy is good or bad, you never know what can happen to your job or your company (or if you’ll still want your job in a year or two). There are varying time spans you can plan for, with the minimum at three months of living expenses but six months to one year being the ideal. Take the amount of monthly bills you added up in your spending plan and multiply it by 3, 6, or 12. That number will show you how much you need to live for a certain period of time.
Once you’ve decided how big of a cushion you want, put a designated amount of money aside each month until this is fully funded. After that, any other savings should go into a separate account. The emergency fund should never be touched.
Financial Checklist: Student Debt Payoff Plan
After your emergency fund is in place, the next step is to pay off debt. Strategize your student loan repayment because, unfortunately, the payment plan you were put on after graduation will probably cost you a lot more later. (Sometimes over the lifespan of the loan, you could even see yourself paying almost double the original amount!) To start, put whatever you were saving to build an emergency fund on top of your monthly minimum due on your student loan. Since you’re already used to not having that money to spend, this should be an easy transition. If this is too tight of a squeeze or you need help with this, you can use programs like ReadyForZero to automate your payoff strategy and keep you on track.
Side note: if you have credit card debt, pay this off first. There are a few reasons for this: 1) the credit card most likely has a higher interest rate and 2) you’ll get a tax break for your student loans but not for your credit card.
Financial Checklist: Get Acquainted with Your Credit Report
This one is easy, but also very important. Request your free credit report each year and check it thoroughly for errors. Also make sure all the accounts in your name are accounts you opened. This is a proactive way to catch identity theft and to make sure that your score is correct. So get – and stay – acquainted with your credit report.
Financial Checklist: Retirement Fund
Last but not least: save for retirement. I know it sounds crazy – I certainly wasn’t thinking about retirement in my early 20s – but the sooner you get started, the better off you’ll be. If your employer offers a 401k, max out the percentage they match. Not doing this would literally be turning down free money. If your company doesn’t offer a 401k, go to your local bank and open up an IRA.
To be honest, you don’t even have to save much. Thanks to compound interest you’ll end up with more money later if you start saving a little bit now than you would if you start saving a lot at 30. Plug some numbers into this compound interest calculator to see just how powerful early savings can be.
We don’t all get a handle on our finances at such a young age. I myself am seven years late in taking care of this checklist. If only I’d known better when I first graduated from college, I’d feel a lot less stress now! That’s why I’m giving you the advice I so wish someone had given me. So go out there and enjoy these awesome years, but don’t forget about these goals as you go!
Image Credit: thetaxhaven