Financial freedom can be a double-edged sword, particularly for young people. Just because you’re earning your own money does not mean you won’t still find yourself living from pay check to paycheck. Here are some things to keep in mind to make sure you won’t have to declare bankruptcy in the near future.
Self-control
You’ve worked hard all week at your 9-5 job, so surely you’re justified in splurging a little (or a lot) with your weekly paycheck. But it would do you a whole lot of good to practice some self-control over your money. Hopefully your parents have instilled in you good practices when it comes to financial issues, but if not, it’s never too late to start. Setting a budget (and sticking to it!) is the first step to being financially responsible. Calculate how much money you need to spend on rent/bills, food, transport and other important expenses, and put the rest into a savings account.
Getting a credit card is not advisable, no matter how stable your income is. Credit cards make it extremely tempting to spend money that you don’t actually have, paving the way for potential debt and spending the rest of your life as a slave to credit companies. If you must get a credit card, go for the low- or no-interest cards and pay off your bills on time to avoid having to pay extra fees. The best way to think about it is to use your credit card as if you are using a bankcard and only use the money you already have.
Emergency Fund
Everyone should have an emergency fund, and it’s always best to start building one up from as early as possible. If you’re sticking to a budget and already putting part of your earnings into a savings account, you’re already on your way to a decent-sized emergency fund. Financial advisors suggest putting your emergency fund in an easily-accessible account and having enough in there to cover living expenses for at least three to six months. This way, if you find yourself out of a job unexpectedly; which in this economy is not uncommon; you won’t be left in the lurch.
If you’re thinking of purchasing something larger, like saving up for a car or a house in the future, you should put the money aside in a dedicated, high-interest savings account. Make the account difficult to access from outside to avoid blowing it all on an impulse purchase. There are several banks that offer high-interest bank accounts that can only be accessed online, so you can’t just withdraw money from it on a whim.
Sara Madigan is a writer interested in all things finance; from reading about stock analysis to helping people with their personal finances.
