How do you handle competing demands on your money when you are just starting out your career? In the terrific new book On My Own Two Feet, coauthors Manisha Thakor & Sharon Kedar lay out a simple 7-step plan to land you firmly on your financial feet in no time. (p.s. The book is targeted to women, but guys can learn a lot from the book too!)
Step #1: Make the minimum required debt payments on all of your outstanding debt. This is absolutely vital to protecting your credit score.
Step #2: Save $2,000 as a “starter” emergency fund. According to a study by The Consumer Federation of America, this is the average amount of “unexpected” expenses an individual faces in a given year.
Step #3: Contribute to your employer-sponsored retirement savings plan (usually a 401(k)) up to the maximum point of your employer’s match. This is literally free money, so do all you can to take advantage of it.
Step #4: Build up your emergency fund (the one you started in Step #2) to cover three to six months of your foundation expenses. The one thing in life you can expect is the unexpected; this fund will give you the financial flexibility to roll with the punches.
Step #5: If you have any credit card debt, pay more than your monthly minimum payment. Paying off credit card debt is one of the BEST investments you can make in your financial future. Increasing your monthly payments will dramatically reduce the time it takes to rid yourself of your debt. Note: Your additional credit card debt payment EVERY month should be AT LEAST $50 to 150. Pay this extra amount on your debt with the highest interest rate first.
Step #6: If you are ready to buy a home, it’s time to save for a down payment. Your home down payment is one of the largest “big-ticket” items you’ll ever make, so you’ll need to make it a savings priority.
Step #7: If Step #6 isn’t relevant because you aren’t ready, don’t want or have already bought a home, then keep saving for your retirement. Remember that the dollars you save early on for your retirement are the most powerful as they have the most time to grow for you.
Thanks to Manisha and Sharon for these simple, savvy and super-important financial tips. I highly recommend their book!