Getting Your Finances Organized
“I should have waited longer to get my finances organized.” In all my conversations with people about their financial situation, nobody has ever uttered that phrase. Clients, friends, relatives, and everyone else that I talk to about personal finance all say the same thing, “If only I would have figured everything out earlier, I would be in a better spot now.” This blog post is to help people eliminate that phrase. The focus will be for those of you still in your 20’s or earlier in your career. I will cover the things you should focus on when you start working full time and how they will set you up for a lifetime of financial success.
If you said goodbye to your 20’s a long time ago, I hope you keep reading! This can still help you and hopefully there is someone you know who you can share this with to help them get started on the right path.
I still remember my first day at PricewaterhouseCoopers. I started in July after graduating from Mizzou in May. I was greeted with a packet of paperwork, PwC gear, and two days of orientation with my fellow tax nerds. Like most people starting their first real job, I signed where I was told and picked the default options for pretty much everything. If I did have any questions, I just asked the HR rep or the person sitting next to me what they thought I should do. Who cares, right? I felt like a King looking at how much my paycheck would be compared to my lack of income during college.
Since my strategy wasn’t the best, what should you do? Start by getting organized. Figure out how much debt you have and how much you have in the bank or investment accounts. You will not be able to make wise decisions unless you can see your entire financial picture. There are many websites that can help you get organized, but a simple excel file works too. Once you have these things organized, you can start working on your various financial goals. Let’s look at some of the most important items.
Cash – How much should you have in the bank? Unfortunately, I can’t answer that for you. The amount is different for everyone. The important aspect of this question is that you need to figure out your monthly budget. How much money is coming in and how much is going out? It doesn’t have to be perfect. You just need to have a sense of where your money is going and how much you spend each month.
Now that you know what a typical month looks like, you can figure out how much cash you should have available. You want the amount to be able to do two things. One, you should have enough to cover your expenses if you were to lose your job. Three months of expenses is a great goal, but if you are just starting to build your emergency fund, start with one month. You can always find some part time work if you can get a new job in a month. Second, you need enough saved to cover your insurance deductibles. Look at your insurance policies and understand how much you would have to pay if you filed a claim. Don’t forget to save for big purchases as well. Buying that new car you want is NOT an emergency.
Tip: Keep your emergency fund and money you are saving for big purchases in a bank account at a separate bank. This will keep you from being tempted from spending it!
To be continued…