Starting your career is both exciting and often overwhelming—especially when it comes to managing your hard-earned money. Now, you have the opportunity to set yourself up for long-term financial success by developing good habits and getting ahead of potential missteps.
As they say, never stop learning after graduating. So, here are some “adulting” lessons to provide a foundation for independent living and help you make the most out of your paycheck:
If you’ve been doing so when you were still studying to manage your allowance, then good for you, keep it up! If you haven’t started, now’s the time. Create or find an excel template, or simply download a budgeting app. This way, you can easily record and track your income and spending, categorize expenses, and visualize your financial data to manage your money more effectively. For accurate monitoring, be diligent in inputting your income and expenses and categorizing them accordingly.
Experts recommend the 50-30-20 rule in budgeting. This means that 50% of your after-tax salary goes to your needs like housing, groceries, bills; 30% goes to your wants which are usually non-essentials like clothes, eating out, entertainment; and 20% goes into your savings, investments, or paying off debt. The 50-30-20 rule is flexible enough to be adapted to individual circumstances and priorities. For example, first jobbers living on their own while also contributing to the family budget can allocate more to the needs category and cut their budget for wants. On the other hand, those still living with their parents can and should put more of their money into savings.
Setting financial goals can guide you in managing your spending and saving habits. Do you want to have your own place and your own car? Do you want to be able to vacation abroad? Do you want to have enough money to start a business or retire early? Having specific and attainable financial goals give you a sense of direction and purpose.
Don’t just have vague goals like "increase savings.'' Commit to a specific target like "save P150,000 within two years." If you have several financial goals, prioritizing them can enhance their attainability. Write them down and factor them in your budget. Get more insights from this article on financial planning.
Treat savings as a non-negotiable part of your monthly budget. While the 20% in the 50-30-20 rule is a suggestion, save regularly, as much as you can, no matter how much you make. It’s ideal to have a separate bank account aside from your payroll account as it makes saving easier, provides a safety net for emergencies, and helps prevent impulsive spending. So you don’t forget to save, set-up an automatic fund transfer from your payroll account to your savings account every payday. With Chinabank Mobile App, for example, you can easily schedule a fund transfer transaction to a future date and make it recurring.
Making saving automatic is a convenient way to achieve your financial goals. This forces you to save first instead of spending every cent of your salary. Then you can make your hard-earned money work harder by putting it in time deposits or investing in UITFs, stocks, or bonds to potentially earn more than in a regular savings account.
This simply means economizing whenever feasible or practical. Little things like bringing your own lunch to work, cutting unnecessary subscriptions, and taking public transportation instead of booking a Grab car or taxi can help you save money. You don’t have to be a miser bent on ever tightening your purse strings. Just live within your means and be money-wise so you can save money and still have fun.
Now, you’re earning a steady income, and sooner or later, you’ll get a raise. As your income rises, it can be tempting to upgrade your lifestyle. Resist the urge to do so. Instead, maintain your current lifestyle and prioritize saving and investing. Even if you can afford to buy expensive items or dine out frequently, still focus on your needs—essential expenses required for living and working—rather than your wants.
Wants are expenditures that enhance your comfort and enjoyment. For example, food is a necessity, but eating out every day is more of a want. You need a bag for your everyday stuff, but getting one that costs an entire year’s salary is a want. Of course, you can treat yourself from time to time, but also consider the impact on your financial goals.
If you want to buy something, take a few days to decide if you really need it or just want it; plus, it might go on sale if you hold off for a while.
A credit card is an excellent financial tool if used responsibly and wisely. It helps build credit, provides rewards or cash back, and it’s convenient and secure to use. Build your credit score by charging only what you can afford, paying off balances on time (or earlier) and in full each month to avoid interest charges, and maintaining a good credit utilization ratio. This helps build a good credit score and credit history, which is important for future financial opportunities like a mortgage or a car loan. Being a smart credit card user gives you a financial safety net, benefits like discounts and other perks, and makes it easier for you to manage your money. Read this article on how to harness the power of credit, and if you think you’re responsible enough not to fall into a debt trap, apply for a credit card that suits your lifestyle.
You might ask: “I just landed my first job, why do I have to plan for retirement now?” It’s because the earlier you start saving and investing for retirement, the more time your money has to grow and benefit from compounding interest. It’s basically "interest on interest," which can significantly accelerate the growth of savings or investments over time.
Starting early allows you to take advantage of the power of time, reducing pressure to save larger amounts later in life. By planning and saving early for retirement, you get over the “hard part” earlier and can spend your later years feeling financially prepared and secure in the future.
Enhance your skills. Continuously invest in your education and professional development. Consider taking courses, attending workshops, or earning certifications that will enhance and boost your skills and career prospects. Make sure you understand the basics of personal finance, such as how to invest, the importance of credit scores, and the benefits of different savings accounts. Investing in your education can lead to higher earning potential, better networking, more job opportunities, and quality investments.
Starting your financial journey with discipline and knowledge sets the foundation for a secure future. A disciplined approach ensures that you live within your means and are prepared for unexpected expenses. Continuously educate yourself about financial matters to help navigate the complexities of managing money and making informed financial decisions. By combining discipline and knowledge, you can gain financial independence and stability.