Pay off your debt, save on housing, and other ways to get your money matters in order
So you’ve finally landed your first real job and are living in your first real apartment, one without a pile of everyone else’s dishes in the sink and someone constantly skulking around that you assume is one of your roommate’s boyfriends, although you’re not really sure. It’s time to start living like an adult, which means getting your financial house in order. And the first of the year is a great time to set new rules and goals for yourself.
No one expects you to do all of these, but making just a couple of them part of your routine should strengthen your financial future:
1. Make a budget.
Yes, it’s the most basic tool in the home-finance toolbox, but it works. Decide what you can afford to spend on things, and then stick to it. This sample budget may have more elements to it than you have in your financial life right now, but it’s a template you can grow with. If you have an account with Baird, you’ll have access to great financial planning and budgeting tools at Baird Online. 360 Wealth allows you to view your net worth and all of your financial accounts in a single location. You can also build a custom budget that allows you to track your income and expenses across multiple spending and income categories.
2. Track everything.
There’s a well-known psychological phenomenon where dieters who start writing down everything they eat tend to lose weight, even without consciously changing their food intake. That’s because keeping track of it makes you more aware of what you’re consuming. The same is true for spending: If you write down everything you buy – including things like automatic monthly payments – you’ll notice that you’re probably spending a lot of money on things you don’t need, like subscriptions to streaming services you never watch anymore. Baird’s 360 Wealth can be a big help here, with an Expense Analysis tool and a way to track your Cash Flow.
3. Pay off debt.
Debt is a silent killer of your savings, eating away at your assets every month. Plus, credit card debt incurs some of the highest interest rates out there, as much as 20% or more. Making minimal payments on these debts will chip off only small portions of the principal and stretch the total payments out for years, so focus on chopping away at the principal. Obviously, for many people, their student loans will take many years to pay down, but other, smaller debts should be a priority every month.
4. Start saving for retirement.
Yes, it’s still forty-odd years away, but the earlier you start putting money toward your future, the more it can grow. If you’re 25 now, and can put away $100 a month at 5% interest, you’ll have more than $150,000 by the time you’re 65. If you wait till you’re 40 to start saving, you’d need to put aside more like $250 a month to reach that same level of savings. The easiest way to do this: Get the employer match, if at all possible, in your 401(k). Your contribution will be deducted from your paycheck before you ever get it, making it very easy to save, plus: Free money!
5. Save for emergencies.
Everyone eventually runs into a financial emergency of one kind or another: Your car breaks down and you need to buy a new one, or – God forbid – you lose your job. A good rule of thumb is to try to have three to six months’ worth of your expenses saved up, so a temporary financial crisis doesn’t derail your life over the long term.
6. Set financial goals.
We all want something that costs a lot of money, whether that’s buying a house or going on a fancy honeymoon. Keeping track of your progress toward meeting one of these financial goals will give you an incentive to save – and will remind you why you’re making these little day-to-day sacrifices.
7. Scrimp on your housing.
Your biggest expense right now is probably rent, which means it’s also your biggest opportunity to save some money. It’s easy to think this doesn’t make a huge difference: $985 a month doesn’t sound that much different from $895 a month. But that difference adds up to more than $1,000 a year.
8. Get renters insurance.
A 2018 study from by Liberty Mutual Insurance found that just 42 percent of millennials have renters insurance, despite the fact that nearly half of all millennials rent. Renters insurance is generally not very expensive – under $200 a year in most states – and it can help prevent a small expense, like a burst water pipe, from spiraling into a highly damaging one.
9. If you get any financial windfalls, save them.
Most of us get occasional unexpected money, whether that’s from tax refunds or birthday presents or cash-back rewards from a credit card. It’s easy to think of this as found money and use it to splurge on an indulgence, but it makes more sense to put it toward your savings or one of your long-term goals (or pay off small debts!). Since the money was unexpected in the first place, you won’t miss it.
10. Finally, don’t beat up on yourself when you have to spend money.
You will incur adulting costs like buying a car or new clothes for work that are one-time expenses, which you should recognize as investments rather than recurring expenditures. It’s all part of building a solid new financial landscape for yourself that will last a lifetime.