Within two years of my college graduation I had started a new job, moved to a new city and officially started my adult life. During that time period, I learned a great deal on starting out as a financially independent adult and assembling the building blocks needed for long-term success. With that in mind, I wanted to put together some of the best things I’ve learned into a list of financial freedom tips. Hope you like it!
Build a personal budget. This is perhaps the most important piece of advice that I can offer you, which is why you hear about it in many of my financial independence articles. Tracking your income and expenses is the critical first step towards building any sort of financial plan. While I was in college I did some part-time work and had a pretty decent income coming in. Since I knew that I had more than enough money each month to cover all of my expenses, I never bothered to put a budget on paper and instead simply eyeballed it. Each week I would check my bank account to make sure I didn’t go below a certain amount, and that was the extent of my financial planning. Today I kick myself because I know that with the minimal expenses I had in college, I could have easily saved 3-5 thousand dollars to bring with my as I started my post-graduate life. This is one of my biggest financial regrets, and goes to show you why having a budget written down ASAP can go a long way towards your financial future.
Start building your credit. Most of my friends in college graduated with absolutely no credit to their name and no mechanism in place to start building it (except tens of thousands of dollars in debt of course). I was lucky, and already had a strong credit history. This had absolutely nothing to do with my planning abilities, and everything to do with having a father who helped me take those critical first steps. When I was still in high school my father had me get a credit card. This credit card existed for one purpose: to pay for my gas bill since I had recently started driving. Under no circumstances was the credit card to be used for anything else, and I was required to pay the card off every month so that there was never a balance carried into the next month. At the time I thought that this was a pain, and only now do I realize that my father was helping me start a credit and payment history early on. Now I use my credit card for all of my expenses, and to this day have never not paid the entire thing off every month. As a result, I had a decent credit history for a recent graduate, which came in handy when I applied for my first car loan a couple of years later. I use this story as an example as to why it’s never too early to think about your credit score, and to take steps to try and build a good credit history as soon as possible. If you need to start building some positive credit history, get a good credit card with some nice rewards and use it for all general expenses. Remember the golden rule to never carryover a balance and watch that credit score go up over time!
Make a plan to pay off any of your debt. Debt is a huge impediment to your net worth and hangs over your head like a cloud while you are trying to set and achieve your financial goals. My biggest debt experience has been college debt, which alongside credit card debt is the most common type of debt folks in my generation are going through right now. Today, the average 2016 college graduate has about 37 thousand dollars of debt in the form of college loans. Paying off your debt will be one of the most memorable accomplishments in your life, and the absence of your monthly loan payments will free up your money to direct towards a range of other goals.
Get started on an emergency fund. Many financial experts agree that everybody should have about 3 months of expenses saved away in the event of an emergency. In the real world unplanned expenses come up all of the time, and you won’t be able to absorb each one into your monthly budget. It’s important to have some money put aside to deal with these events so that your goals and plans are not disrupted. This will ensure that financial emergencies won’t lead to you breaking the golden rule of credit cards that I mentioned above.
Start planning for your retirement. This is another one of those lessons that I owe to my father. Around the same time that the credit card story took place, he had me open up a Roth IRA to get started on my retirement savings. Just like with the previous story, I had no idea what it was all about and kept up with it solely because I was told to. The rule was that I had to put between $50 and $100 into it every month. As a result, I had a few thousand saved for retirement when I graduated from college. Now that I actually know how retirement savings works, I make sure to put in a percentage of my paycheck each month. It’s a well known fact that the earlier you begin to save, the more money you will accumulate for retirement. Starting to save today versus some undetermined date in the future could make millions of dollars worth of difference!