Build a budget
A budget helps you stay on track with your finances. Identify your current monthly income and expenses, making sure to include discretionary expenses (entertainment, travel, hobbies) as well as fixed expenses (housing, food, utilities, transportation). Compare the totals. Are you spending more than you earn?
You work hard for your money; a sound budget plan will help you maximize those earnings. Learn to make the most of every dollar you earn, so you can build toward a brighter future for yourself and your young family.
Establish an emergency fund
It's an unpleasant thought, but a financial crisis could strike when you least expect it, so you'll want to be prepared. Protect yourself by setting up a cash reserve so you have funds available in the event you're confronted with an unexpected expense. Otherwise you may need to use money that you have earmarked for another purpose--such as a down payment on a home--or go into debt.
You may be familiar with advice that you should have three to six months' worth of living expenses in your cash reserve. In reality, though, the amount you should save depends on your particular circumstances. Consider factors like job security, health, income, and debts owed when deciding how much money should be in your cash reserve.
Review your cash reserve either annually or when your financial situation changes. Major milestones like a new baby or homeownership will likely require some adjustments.
Be careful with debt
Credit cards can be useful in helping you monitor how much you spend, but they can also lead you to spend more than you can afford. Before accepting a credit card offer, evaluate it carefully by doing the following:
- Read the terms and conditions closely
- Know what the interest rate is and how it is calculated
- Understand hidden fees such as late-payment charges and over-limit fees
- Look for rewards and/or incentive programs that will be most beneficial to you
Bear in mind that your credit card use affects your credit score. Avoid overspending by setting a balance that you're able to pay off fully each month. That way, you can safely build credit while being financially responsible. Take into account that missed payments of any sort can cause your credit score to suffer. In turn, this could make it more difficult and expensive to borrow money later.
This is also the time to deal with existing debt. If you are dealing with student loans, make it a priory to pay them off. If payment is an issue, there are many repayment plans that make it easier to pay off student loans. Check to see whether you qualify for income-sensitive repayment options or Income-Based Repayment.
And finally, beware of new borrowing. While it might be tempting to borrow for things like graduate school or a new car, ask yourself the following questions before you do:
- Is this purchase necessary?
- Have you comparison-shopped to make sure you're getting the best possible deal?
- How much will this loan or line of credit cost over time?
- Can you afford to add another monthly payment to your budget?
- Will the interest rate change if you miss a payment?
- Are your personal finances in good shape at this time, or should you wait to borrow until you've paid off pre-existing debt?
Weigh your pre-existing debt against your need to borrow more and determine whether this is a wise decision at this particular point in your life.
Take advantage of technology
Access to technology is one major advantage that benefits millennials, compared with their parents and grandparents when they were starting out. These days, there's virtually an app or a program for everything, and that includes financial basics. Do your homework and find out which ones could be the most helpful to you. Do you need alerts to remind you to pay bills on time? Do you need help organizing your finances? Are you looking for a program that allows you to examine your bank, credit card, investment, and loan account activities all at once?
Although apps are one way to get started, working with a financial professional for a more personalized strategy is still something that should be on your radar.
