After finishing an online
- Calculate your discretionary income
- Cuild an emergency fund or pay off debt first
- Reward yourself responsibly
Calculate Your Discretionary Income
Many professionals enter the workforce and underestimate the amount of payroll taxes that get deducted from their salaries. Taking 20-25% of your gross pay will give you an estimate of your total payroll taxes, but taxes vary from state to state. For a more accurate estimate, there are a number of salary calculators available online.
After calculating your net pay, subtract monthly expenses such as rent, insurance, food, transportation, and all other outstanding commitments that you have. The balance will give you your total discretionary income.
Build an Emergency Fund or Pay Down Debt
Few people sail through life without encountering a financial setback, so preparing for unexpected events is critical to managing your finances. If you have credit card debt, consider eliminating it before contributing to any savings accounts. This strategy will reduce your debt more quickly, but will leave you without a cash cushion. However, you could instead rely on available credit to fall back on in case of an emergency. The right decision depends on your current reserves and what you are most comfortable with.
Invest After Contributing to Savings
Unless you’re a very savvy investor, working with a financial adviser will help you to stay clear of any investments that aren’t right for you. If your employer offers a 401(k) and matches contributions, make sure to invest the maximum of what they offer to match. After contributing to your savings account and your 401(k), consider other investments, but take care when investing in uninsured products because may lose value.
Budget for Life Events
Life events such as having a wedding, purchasing a home, or the death of a family member leave many professionals turning to credit cards and short-term loans. Developing a plan for large potential expenses helps to avoid paying high interest rates on loans and is a necessary part of long-term financial planning. Consider setting up separate accounts for each event at your financial institution.
Being responsible with your money doesn’t mean that you have to bring a sack lunch to work every day and avoid eating out. Be realistic when creating a budget and take into account any infrequent expenses for the current month. Also, create a weekly budget for entertainment to avoid overspending on the weekends. Most importantly – don’t feel guilty for indulging in one of your guilty pleasures. You’re a professional now. You’ve earned it.
Lexington Alexander was born in San Luis Obispo, California in 1984. He graduated from Washington State University with a bachelor’s degree in general studies in 2010. He is currently pursuing a master