4 Budgeting Tips for Young Professionals
It seems the biggest stress plaguing young people is money. Whether it’s not having enough of it, spending too much of it, or being unsure of how to manage it, money is at the top of everyone’s mind as they set out into the real world. For most young professionals, now is the first time there has been a steady flow of money, and it’s hard to decide exactly how to manage it, while living the lifestyle they want.
It’s an intimidating concept and will probably take years to fully master. The good news is that you don’t have to have a fancy degree or a specialized background to manage your money effectively. You don’t have to have a huge budget to need to know how to manage it, either. Here are a few budgeting tips for young professionals.
Know Where Your Money Goes
Ever ask yourself, “where does all my money go?!” It seems like many young people do. And even though they make decent money, they may often find themselves coming up short at the end of the month. Do yourself a favor and track every single one of your expenses for a month. Record every dollar you spend, right down to your morning Starbucks fix and that afternoon soda from the office vending machine. Consider using secure resources like Mint to make tracking your spending a breeze, and pinpoint where you are spending the most money, sometimes without even realizing it.
Map out an entire month’s spending can help you narrow down a few places you can afford to cut back, and help close that gap at the end of the month. This is also a good time to evaluate your monthly bills. Look closely at your reoccurring monthly expenses, such as rent or mortgage payments, car insurance, and home insurance, to see if there are any areas you could cut back, or if there are any promotions or deals you can utilize. Many utility companies offer different savings monthly, and many insurance companies offer discounts if you bundle.
Start an Emergency Fund
Even the smallest of budgets should include a contribution to an emergency fund. Think about setting a goal for yourself. Maybe you want to save enough to live off for three to five months in the off-chance you find yourself unemployed down the road. This will give you the peace of mind of knowing that you have a cushion if things don’t go as planned. No one ever thinks an emergency will happen to them, but almost everyone experiences at least one financial emergency in their lifetime.
Putting money away is often easier said than done as many struggle to save for anything with an income that closely matches expenses. But it can be done, and it should be a priority. Start by automatically setting aside a small amount — say, $20 — from each paycheck, to be deposited into a savings account that you don’t have regular access to. Make this account a hassle to withdraw money by not activating a debit card or ordering checks for it. You’ll be much less likely to dip into an account that requires a trip to the bank and over time that cushion will build to something substantial.
Save One Third of Your Income
Saving $1 of every $3 you earn may seem like a lot at first, and at times it may not be feasible. It is certainly a lofty goal, but a respectable one that many financial advisors have clients strive for. This may not be realistic within the first year of your professional career, but it should be your goal within the first 5-7 years. If your pay increases, try not to increase your expenses right along with it. The extra you are making should be saved for future plans and goals, like buying a house or starting a family.
A solid savings plan will become the driving force behind your road to achieving financial stability. A healthy cushion of savings will give you more peace of mind than you realize, and will be much more beneficial to you than the material things you could have bought. It will involve some minor sacrifices in the short-term, but in the long-term you will be glad you made paying yourself first a priority.
Work Healthcare Incentive Programs into Your Budget
In an effort to cut costs, employers and healthcare providers are beginning to offer employee incentive programs for optimal health. By participating in these programs, you could earn reduced rates on your health insurance premiums and improve your own health at the same time.
Taking care of yourself now will help avoid expensive health-related bills down the road. Exercise regularly, eat your fruits and veggies, don’t smoke, and limit the amount of alcoholic beverages you drink. Maintaining a healthy lifestyle will help you earn incentives, and save some cash in the process.
As a young professional, you are at a turning point in your life. This is a fresh start, so making sound financial decisions from the jump will ensure financial success in the future.