Managing your personal finances is a crucial aspect of life. It can be difficult, especially if you’re looking for or just found a new job. For many who are just finding work after serving time, this is a critical stage financially.
Why is personal finance so important?
Unfortunately, failing to manage your money can quickly lead down a difficult path in many ways. It can hinder you from reaching your goals, and there are non-financial impacts as well, including emotional and mental stress.
On the flipside, properly managing your money can also vastly improve your life. To name a few, it will allow you to afford transportation for work. Saving money can help you eventually buy a home in the future. It can also provide a safeguard against potential health emergencies.
What you choose to do with your money now will have both an immediate and lasting impact.
All of this starts with the daily and weekly decisions you make with your paycheck. Here are three basic steps to help you get on the right track and pave the way to a new future.
Step 1: Set Aside a Portion for Necessary Weekly Spending
One of the first steps to take with every paycheck is to set aside funds to meet your basic spending needs. These include regular expenses such as necessary items or services to make it through the week such as groceries, fuel for your car, bus or subway fare, or even childcare costs.
There are a couple ways you can make setting aside your spending money easier.
To manage your weekly expenses, consider setting up a direct deposit into a checking account with your employer. Once in your checking account, you can use a debit card to draw from your weekly budget as needed. Some people may spend too much with the debit card at their fingertips. If this is you, consider withdrawing a set amount of cash to cover the basics. This is called envelope budgeting.
Pay attention to how much of your paycheck is getting spent each week.
As a newly employed worker, you should really try to limit your spending. Decide what is “essential” in your budget. It should not amount to your entire check. If it does, then consider cutting back wherever possible. Try to catch deals or coupons at the grocery store for instance. Some public transportation companies offer discounts when buying a monthly pass.
Step 2: Set Aside A Portion for Debt Repayment & Bills
Another significant part of your paycheck will go to paying bills. These include rent or mortgage payments, utility payments (e.g., water, electric, gas, etc.), cable or internet, debt payments, and more.
Rent and utilities are very important for obvious reasons. Having access to shelter and water are part of your basic needs and must be paid for. On a monthly basis you should review what you’re paying for and trim the fat. If you’re paying for cable, continually to evaluate if this is a service you are using. If the electric bill is too expensive, try to unplug all of your appliances when not in use. Maybe you need to find a cheaper place to live if rent is too expensive.
Quick Tip: Don’t be afraid to negotiate your bills. More often than not, you can reduce your cable, internet, and other bills simply by asking for a lower rate.
Further, paying down outstanding debt is also an essential part of your bills. Failing to pay down loan debt or credit card debt will cost you financially in the future. For starters, allowing interest to accrue on larger debt balances will increase interest costs over repayment and bring on fees. Furthermore, missing payments will negatively impact your credit score.
If possible, you can try to make additional or extra payments towards your credit card or other debt. By paying more than the minimum you can payoff debt faster and save money on interest. Consider setting up automatic payments each pay check. You can set it and forget it, and in the process make additional payments each pay cycle.
Quick Tip: Personal loan rates are typically much lower than the interest rates charged on credit cards., as low as 5% vs. an average of 18%. You might be able to save money and payoff your credit cards faster by refinancing that debt to an unsecured personal loan. However, don’t use this as an excuse to overspend on your credit card later.
Step 3: Automatically Deposit A Percentage in to A Savings Account
After meeting all essential financial obligations, it's important to deposit a percentage of each paycheck into your savings account. This step is meant to help you build up savings over time. You should do you best to leave your savings untouched – let it grow.
You can start small. Anything is better than nothing. Over time, continuous savings deposits will build up. On top of this, the money in your savings account will build interest, so the bank will pay you to keep your money with them. Be sure to keep your weekly spending in check. If you spend less, then you can save more.
With more cash reserves, then you will have more flexibility to make financial decisions. These include things like putting a down payment on a home, saving for retirement, purchasing a new car for work, or maintaining an emergency fund. Building up savings in the long term is essential if you want to stop scraping by paycheck to paycheck.
Summing It All Up
You work hard for your paycheck. It’s important to take the right steps with your money. To do so, you must first account for your weekly essentials, monthly bills, and debts payments. Any additional funds should be deposited directly into a savings account. Planning your money right is planning for your future.