The financial choices you make in your early twenties, especially after graduating college, can have a long-lasting effect on your personal finances. Adopting good financial practices such as budgeting, saving, and investing as a fresh graduate or young professional can help you to avoid unnecessary debt, save up for things that are important to you, and develop a healthy outlook toward money for a secure and comfortable life today and in the distant future.
It may be simpler than you think to gain financial freedom in the early years after graduating college. Follow these five money rules, and you will be thanking your past self in your 30s, 40s, and 50s onward.
This is a simple addition and subtraction concept. By spending less money than you earn, you will open up a whole new world of opportunities! You will be able to build up cash for rainy days, pay your debt, and set aside money for long-term goals.
However, if you spend more than you earn you will have a storm of unpleasant consequences like borrowing money left and right, racking up debt, and living way beyond your means. The worst part is that the debt situation can escalate beyond your control leaving you with more repayments to make and no end in sight.
There is no shame in being young and poor. Take a bus. Do not buy clothes you do not need. Live in a modest neighborhood. Don’t eat out every day. Live below, not within your means and you will be on a path to financial stability.
When considering a job offer, many individuals consider salary to be the primary determining factor. But it is important to consider your future outlook. The current salary may be adequate, but without assured yearly adjustments for inflation, your real income might decrease over the long term. And as a result, you might find yourself struggling financially in the long run.
If you've received an offer for a salary based on commissions, ask yourself are the bonus structures realistic or just a pipe dream? You might also want to inquire about the frequency of achieving targets from your potential employer.
Another factor to consider is the benefits and perks. For example, while the offered salary may be higher than your current role if your employer’s retirement plan contributions are lower, it could potentially have a negative impact on your long-term financial situation. In certain cases, a lower salary can be compensated for by a generous benefits package and retirement plan.
Other values you can consider when assessing the value of your benefits package include:
If obtaining money for a health insurance plan appears unattainable, what will you do if you have to go to an emergency room- where even a simple injury like a broken bone could incur costs amounting to tens of thousands of shillings? If you are uninsured, don't take your chances with your health - get health insurance coverage immediately!
It is easier than you think to wind up in a car accident, get sick, or trip and fall down the stairs. The insurance provider will cover your costs and help you in such trying circumstances. Generally, a health insurance plan gives you peace of mind knowing that your savings will not be threatened in health emergencies.
If you are employed, your employer may offer health insurance, including National Health Insurance Fund (NHIF). If you need to buy insurance independently, research the various options provided by different insurance companies. Look at quotes from different insurance providers to find the lowest rates. And don’t forget to check customers' reviews online or ask your friends and family for recommendations.
Throughout human history, people have held various thoughts and opinions about money. And while not everyone will agree about the best ways to make money, invest, save, and spend, many wise people have channeled their insights over the years.
One such person is Warren Buffet, an investor and the fifth wealthiest man in the world according to Forbes 2022.
Here is one of his financial quotes that we can all resonate with:
Do not save what is left after spending, but spend what is left after saving.
In other words, pay yourself first. If you do not make saving money for the future a priority, you will never get around to doing it. And when you need it for a rainy day, it will not be there- you will have spent it. You can start by saving 10% of your take-home pay. You will be surprised by how much you will have saved in just one year.
Read Also: What Does Paying Yourself First Really Mean?
Regardless of your financial status, creating a budget and sticking to it can help you manage your finances and avoid uncertainty about where your money went. A budget is like a financial compass that ensures you navigate smoothly through the waves of cash inflows and outflows. It helps you track and organize your money.
Your budget should account for personal financial goals such as bill payments, savings, charitable giving, personal expenses, and others.
Read Also: 6 Simple Steps to Create a Working Budget.
No matter your income level or financial situation, you can give yourself more breathing room by becoming a wise shopper. This means finding ways to pay less money when you shop. Note that it does not imply buying the cheapest product but rather buying quality products at the best price! The quality of the product matters especially when it comes to saving money.
One way of being a wise shopper is by browsing the internet or asking your friends who have bought a product you intend to buy where to get it for a cheaper price. You can also look for coupons, and discounts or wait for things to go on sale. Sometimes you might have to buy in bulk, especially for perishable goods like groceries to get the best deal.
The idea is to cut costs no matter how little it is. It may not save you the most money but at least you will have made a conscious and well-informed decision.
Read Also: 5 Principles of Spending You Need to Know
Debt is not a bad thing. It is unrealistic to rule out borrowing money from our lives. Most people own houses thanks to home mortgages. And I am grateful for HELB. Without it, I don’t think I would have paid my campus fees with ease. But borrowing money and the debt it creates should be dealt with swiftly.
Stretching out debt as far as possible can lead to increased interest rates, more debt, low credit scores, conflict in relationships, and even stress. That is why it is important to prioritize paying debt off as soon as possible. Opt for the largest payment you can manage, not the smallest the lender will approve.
You should also have an escape plan. You need to have a plan in mind to pay off the debt early in the event that life takes an unexpected turn, either paying the debt with other resources or selling an item.
To avoid being overwhelmed by debt, borrow only what you know you can repay.
Read Also: How to Enjoy a Debt-free Life in Your 20s
It is super important to learn how to manage your money. Otherwise, other people will manage it for you! Some people might have bad intentions, while others might have good intentions but may not be well-informed.
Instead of depending on random financial advice, take charge of your own financial future. Another thing to remember is financial decisions are sometimes personal and they depend on the person. And there is no specific money management method that is tailor-made for everyone. It totally depends on you and your situation! So remember that.
This is important too- and it means saying no to a purchase you have wanted for so long, to a friend borrowing money, or even to a job that is not working for you!
Learning how to use the word NO wisely in financial situations can help you use your money resources efficiently and effectively.
Many of the financial decisions that you make in your early twenties will have a lifelong impact, which is why it is important to be financially literate. Getting a job after college should open new doors and not burden you with financial regrets. These 8 money rules can pave the way for a prosperous financial future and give you the upper hand when it comes to financial success.