You have just received your first paycheck: it must be an exhilarating feeling, surely. Many of you long for the moment when you earn money after college since it is a significant milestone in your career. However, most of you also underestimate how quickly you can spend that money in your excitement of having earned it yourself.
Financial management is always an essential skill to have but especially so once you earn your income. You don’t need to be a math whiz to know how to spend your salary properly; all you need are addition and subtraction. Here are some methods you can follow to make yourself financially savvy.
7 Ways to Manage Your Income
Appropriately handling your income does not mean you need to always find ways to make more money. Whatever your income is, you can find a way to use it to cover all your needs and hopefully save some amount for a rainy day.
Just Starting Out In Your Career? Here’s How You Can Make The Most Out Of Your Income
1. Prepare a Budget and Stick to It
Planning a budget can be tedious, especially the first few times you have to do it, but it is the first step in using your income well. You can have a short-term and long-term budget, with the former covering the next 30 days or so, and the latter covering expenses like a house or a car.
If you are a fresh graduate, your initial expenses are likely to be limited to necessities like rent, travel, food, and groceries. These recurring expenses make it easier to chart out a monthly budget and keep track of your spending.
You can use a mobile app or a spreadsheet to jot down your expenses, thereby maintaining an organised record of your financial transactions. If the app has a feature to alert you when you cross a certain threshold of spending, then pay attention to these little red flags to keep your expenses in check.
2. Pay Off Debts
A critical expense you may have after college is your student loan repayment. In general, if you have to repay a debt, it must be one of your primary concerns once you start earning. Failing to pay off debts on time will increase the interest and the overall amount, putting you in a worse situation than you were in before.
Use a loan calculator to plan how much you should allocate towards loan repayment every month. Remember, if you pay off a higher monthly amount, you can settle the loan in a shorter period. Having a clean record of debts and loans will lead to minimum hassle if some agency performs a credit check (UK credit score of 740 and above is excellent).
3. Save for Emergencies
Mathematically, your saving is what remains after all your expenditures. However, to manage money well, you should consciously set aside a fixed amount every month to save for future emergencies.
You may fall sick, your landlord could ask you to move out within a day, or your vehicle could get damaged in an accident. You can handle these unpredictable incidents in a relatively calm manner when you have the money to do what is required.
4. Save for Long-Term Purchases Instead of Using Credit
As you work for a couple of years or longer, your income would increase, and your needs would change. You may want your family to move into a bigger house, or you may want a car to drive to work instead of taking the bus. For such expensive long-term purchases, it is best to save money and use it instead of borrowing money.
By living a frugal life for the first few years, you save up enough to spend on the necessary luxuries like a car. Repeatedly borrowing money and facing issues with repayment can diminish your credit score, which, in turn, hampers your chances of securing future loans for something essential (like your kid’s education). If you want to know how to improve credit score (UK), check out this link.
5. Limit Your Credit Card Usage
Credit cards can be quite tempting, especially if you are an impulse buyer. The prospect of buying now and paying later can often get you in trouble because of the piling interest.
If you are on a tight budget, the best thing to do would be to temporarily freeze your credit card and spend only the necessary amount. In case you still want to keep it around for emergencies, ask a trusted friend to hold on to it for you, so that you don’t go overboard with purchases.
6. Invest Your Money
Whether it is a fixed deposit account in a bank or the stock market or real estate properties, there are plenty of investment opportunities for everyone today. Low investment mutual funds and treasury securities are also other options you can consider. Investment is not the same as gambling; with the right strategies for investing money, you can be sure of consistently getting positive returns.
Investment options like these help you gain better returns in the future to supplement your income. If you are serious about investing, ensure you read enough about the pros, cons, principles, and other details about the asset you put your money in. If these rules are too complicated, you can hire an agent to invest on your behalf, for a fee.
Another form of investment you should consider is retirement savings. Most employers offer a retirement plan for which they invest on your behalf every month, with some contribution from the employer too.
7. Keep Learning
As your income, lifestyle needs, and situations change, you should also keep updating your knowledge of financial management. There may be better tools or software aides available online, there could be more lucrative forms of investment, or your company could bring in a change to their retirement policy. Look out for these opportunities and keep learning how to handle your wealth better.
With More Money Comes More Responsibility
Managing money is a habit that you need to develop by putting in discipline and commitment. You can make millions and still struggle with debt, or earn only a tenth of that but live comfortably with no financial issues. It comes down to how responsibly you handle your finances.