After completing your college education and getting into the corporate world; most young professionals find themselves in a new zone that they might not be very familiar with in terms of personal financial management. During your college days, a bigger proportion of your entire budget was being financed by your parents and the student loan. This gave you the luxury of overspending with the hope that your parents would intervene as lenders of last resort in case of a personal financial crisis. Now that you are the master of your own life and finances, you require to be more disciplined on managing your monthly income in order to create and grow your wealth as well as avoid being trapped in the rat race.
With a lot of peer pressure from friends and workmates to spend more on luxury items that you do not need, you might find it very difficult to come up with a clear financial plan and stick by it. To overcome the temptation of being a spendthrift and gain control of your finances, you will therefore need to be disciplined and preferably have an accountability partner to keep you on track. If you are starting out and you want to avoid the financial mistakes done by most young professionals, consider the guidelines provided below:
Keep your monthly bills under watch
With the expectation of a paycheck every end of the month, the temptation to spend carelessly is very high especially if you are using a credit card to do your shopping. Having a clear shopping list of the essentials you need; and sticking strictly to purchasing them when you go shopping will help avoid emotional buying of items you do not need, and hence save you some money. Buying items using cash is recommended in this case. However, if you must use a credit card when shopping, then get credit cards with the best rewards in terms of loyalties that you can redeem later and save on your shopping budget. The loyalties you earn after shopping for some time will help you to cut down the amount of your credit card debt; when you redeem them through getting free items on your shopping list.
Prioritize and payoff your debts
Money allocated to monthly debt repayment is money being taken away from you that you could have used for other fun activities; or you could have saved and later on invest in order to grow your wealth. It is therefore important to ensure that all your debts are well prioritized and paid off as soon as possible in order to offload the debt burden and give you more freedom in your budgetary allocation for your income. As a young professional, your biggest debt will in most cases be your student loan; while others will also have mortgage and car loans to pay. Prioritize your loan repayments in such a way that you clear the loans with high monthly repayments first; and remain with the loans with low monthly repayments which you can clear later on over time.
Save and invest your surplus income
After keeping your monthly bills on check and start repaying your largest debts, your surplus income will automatically start growing; if you do not add other monthly expenses to your personal budget. To ensure you maximize your returns from your surplus income, first deposit it in an interest earning savings account. This gives you an interest income as well as helps you to access a larger loan size when you want to borrow for investment purposes. After getting to a critical mass with your savings, you should now start growing your wealth much faster by investing in investment channels and instruments that offer you high returns. Diversifying your investments is highly recommended at this stage; in order to avoid losing all your savings in one investment when market volatility hits a specific sector.
Your journey to financial freedom will highly depend on the decisions you make about how you earn income and how you allocate it to different needs every month. Having a personal financial plan as a young professional is therefore the first thing you need to do when you get a regular source of income in the corporate world. Following the above guidelines will help you to create a financial plan in the form of budgetary allocation of funds to different monthly recurring expenses, as well as having a portion of your income set aside in a savings account for future investment. How much you save and how regular you do it; will on the other hand be driven by the type investments you want to make and the initial capital investment that is required to venture into the investments.