The Eliot Rose Blog
3 Important Financial Tips for Young Professionals
Added 03/24/2016 by Jason Siperstein, CFA, CFP
Many of my friends often ask for my advice and thoughts on investments and how to best manage their finances. Everyone’s situation is different, but there are 3 general rules of thumb that apply to most people. These rules are a good starting point for building one's financial foundation.
Rule 1: Create a Budget
If you don’t remember anything from this article, this is the tip you should remember – create a budget! More than anything else, creating a budget keeps you organized. You can see how much you are taking in and how much you are laying out. It is important to understand where your cash is going in order to prioritize your expenses and start saving.
There are some helpful online budgeting tools to get started. My favorite tool is Mint.com and it's free to use. It gathers all your financial information in one place, giving you the whole picture so you can easily track your spending.
Rule 2: Create an Emergency Cash Reserve
You never know what the future will bring. Maybe you lose your job, total your car, or have an unexpected medical expense. Whatever the case may be, I recommend having 6 months of living expenses in cash for unexpected expenses. Although you won’t be earning anything on this cash, it’s purpose isn’t to make money, but protect you from going into debt in emergency situations.
Rule 3: Pay off Your Credit Card
There are good types of debt and bad types of debt. Credit card debt is one of the worst! Average credit card interest rates are around 18%. If you have a $6,000 balance and make only minimum payments, it would take you about 7 years to pay off and you would be paying about $5,000 in interest! That is money that you could have saved, invested, or spent on something you enjoy. If your debt balance is high in relation to your credit limit, it will also affect your credit score, which affects your ability to buy a house and other major purchases. The key point here is, if you are able, to always pay your balance in full. If you are unable to do that, you can buy time by finding credit card promotional offers that offer a zero-cost balance transfer at no interest for a number of months.