Transitioning from life as a student to becoming a professional has its challenges, and one of those challenges is getting your personal finance in order. Earning your first pay check and starting to make money usually leads to a sudden increase in expenses; I know, because I’ve been there too.
Good financial management is crucial at this point in life. When you start organizing your personal finance the right way, you can start building your wealth early, and you will be able to achieve more things in the long run. That is why these financial tips are crucial.
Plan for the Future
The tempting thing to do is going from one pay check to the next and simply use all of the money you earn. However, you are taking on more risks when using this approach. For starters, it is more difficult to save when you already have it in your mind to spend all of your income. You also have less ability to deal with financial emergencies and changes in life.
What you want to do instead is start your journey to good financial management with a clear set of objectives in mind. Think about what you want to achieve financially in a year. Start working on longer-term objectives, including the level of financial success you want to reach in 10, 20, or even 30 years.
The objectives act as your guideline as you organize your personal finance. With clear objectives in mind, you can work out how much you need to save, the kind of investment instruments you need to use, how to best build your portfolio, and eventually reach the financial objectives you set for yourself. This is the best way to start organizing your financial future as a fresh graduate.
Saving isn’t something you want to do at the end of the month. In fact, saving whatever you have left after expenses doesn’t work 90% of the time. There is also the temptation of blowing through your income that we discussed earlier.
Instead of not being able to save, it is much easier to save a portion of your income early in the game. As soon as you receive your first salary, set aside 10% of it and put that portion in your savings account. Don’t worry about the actual amount; what’s important is that you start saving right away.
As you become more stable financially, try increasing the portion of your income you save in small increments. Continue until you can save 30% of your income without hurting the rest of your monthly budget. That’s a milestone to aim for; the sooner you can get there the better.
Start Budgeting Your Expenses
Having a clear budget is another thing you want to get used to from the start. Good financial management doesn’t mean you cannot spend your money on the things you like. In fact, organizing your personal finance properly gives you more opportunities to do that in the future.
For now, what you want to do is review your regular expenses and start making a budget for the following month. As you go through the process of identifying expenses, categorizing them, and figuring out how much you can afford to spend on each category, you’ll start finding new ways to optimize your personal finance too.
If you regularly spend £2 on coffee from that coffee shop near where you live, you are looking at £60 that you can potentially save every month. Dining out every night is a similar expense you can manage better as well. There are many of these expenses – small expenses that we make unconsciously – that actually amount to a big portion of your income. Set a budget and gain better control over them.
The last piece of the puzzle is better planning. Having a monthly budget allows you to keep track of your expenses – and income – and stay within the limits of your financial capacity. However, there will still be times when a sudden expense or an emergency ruins your budget and throws you off your game.
To deal with this type of situations better, you need to have clear plans in mind. Do some research on how you can best fill gaps in your monthly budget. Take your time and learn more about financing options that you can lean on in such situations.
Even better, start allocating another portion of your income and build up an emergency fund alongside your savings. You can also turn to insurance to mitigate some of the financial risks you face every day by budgeting for insurance premiums.
Last but not least, develop good financial discipline. As long as you stick to the plan and use the tips we covered in this article to your advantage, getting your personal financial life organized from the very start will not be a difficult challenge to overcome.