3 Key Pieces of Financial Advice for Career Starters
A recent 22-year-old college graduate asked me what’s the most critical piece of personal finance advice I could share. For someone with her own self-described lofty expectations for herself and future looking to maximize her income and value as much as possible, this is what I offered.
Live Beneath Your Means
Live beneath your means. Spend less than you make. Be wary of “lifestyle inflation” where you add conveniences or luxuries that you get so used to that it makes it difficult to stop.
Pay Yourself First
While you only asked for one, I’ll add this one: Pay yourself first. Stash away money in your employer-sponsored plan and your own savings.
While you may have great expectations for your career, things can happen. So having an emergency reserve in place will help you and provide flexibility. If you are out of work, you won’t be forced to just take any job to cover your bills if you have an emergency reserve that covers your overhead for four to 8 months).
Stick to a Spending Plan
While most folks don’t want to deal with the drudgery of budgeting, here’s a simpler approach: 50/30/20. Allocate up to half of your after-tax income for your fixed overhead. Then allocate up to 30% for discretionary things (i.e. entertainment, gym memberships, travel, vacations, dining out, personal electronics). That should leave you with 20% that you can allocate to pay yourself. This savings can be used to fund future consumption like that round the world trip or to check off things on your “bucket list”. It’s also covering your retirement savings.
Bonus: Get Advice from a Fiduciary Adviser
And don’t be afraid to pay for advice from a fiduciary financial planner every now and again so that you can stay on track.
More than one piece of advice but the basis of a successful financial future.