You did it! You finally landed that much-coveted, career-building job and are well on your way through your adulting journey. But what do you need to know about spending and saving in your 20s? Now that you’re going to be seeing regular pay, here’s what you need to know about managing your money.
Take stock of your current financial situation and regularly review your cash flow
Getting a first job is a big deal, and may kick off a new phase of your financial independence. This said, few of us enter into this phase with a clean slate, especially if we’ve had to cover schooling costs. For this reason, it’s important to take stock of your financial situation as it is now, so that you can plan where you want to go. These are the questions you may want to answer and record somewhere:
- What is your current debt amount? Break this out into a high interest and low interest category. High interest debt includes credit card debt, while school loans may be low debt.
- What assets do you bring? Do you have any financial gifts, savings, property, etc. that belong to you? Note these in a separate column.
- What are your existing recurring expenses? Write each out as well as how often they recur (annually, monthly, bi-weekly, etc.). This may include phone bill, insurance, internet and cable, music subscriptions, and so on.
- What does your cash flow situation look like? How often and how much do you expect to earn? Any other income, such as government assistance, you can also add to this.
- Then look at this overall picture to assess your financial health, and regularly review it to update as it changes with time.
Familiarize yourself with discretionary and nondiscretionary spending
Looking at your expenses, make note of which of these are non-discretionary expenses (necessary) and which of these are discretionary (nice-to-haves). Minimize discretionary spending as much as possible, and make a list of priorities for your non-discretionary spending, reviewing your income to make sure you will have enough to cover your necessary expenses.
Prioritize paying off any high-interest debt or school loans
Debt can easily skyrocket. Considering your ongoing necessary expenses, how much you owe, as well as your cash flow, prioritize paying off high-interest debt and then school loans as quickly as possible. This may also mean minimizing any discretionary spending for the time being, and setting up automatic payments to coincide with payday.
Create a budget, then review it regularly
Better yet, create a budget and review it regularly. One option is to create a monthly budget, and to update it every few days, or weekly, tracking any money going in or out. While there are numerous apps, pen-and-paper legers, a simple Excel or Google sheet will suffice. Google also offers a free template for this purpose.
Apply for a (single) credit card and start building (good) credit
While knowing how to build good credit is its own skill (and not always intuitive), one simple thing you can do to ensure you start building good credit is ensuring you pay your bills fully and on-time, as much as possible.
Also, if you don’t have a credit card yet, now is the time to apply for a single credit card that’s optimal for you (many offer cash back rewards). The trick is to keep yourself to a reasonable limit — one which you can fully pay off within a single pay period. Don’t take out one with more credit than you need, as tempting as this may be, even if the bank approves you for more. Strive to only put on your credit card what you have money to cover already, and be sure to review your statement regularly for any discrepancies.
Related: The best credit cards of 2021.
Plan your savings and squirrel some away in an emergency fund
With your expenses covered, and a plan to pay off any debt, now you can review your income for any possible saving opportunities. While it’s great to start saving for any future purchases, you first want to ensure you have enough squirreled away for a rainy day in an emergency fund. Open a high-interest savings account such as a TFSA as an emergency fund, and contribute as much as you can on a regular basis until you’ve saved enough to cover three to six months of your expenses (calculate this amount to know what goal you need to reach). And if you get caught off guard without an emergency fund, fret not; here is what you need to do.
See also: 7 ways to invest $100 and grow it to $1000.
Enroll in your company savings plan
Speak to your HR or manager about any available company savings plans. Many offer matching contributions, and offer up great incentives to help you save for your financial goals. Speaking of which…
You may also like: These remote side hustles help make you extra cash from home.
Set goals and reward yourself when you reach them
What are your long-term financial goals? Ten-year financial goals? Five-year goals? One-year goal? Do you hope to own a home? A car? Is it paying off all your debt? Helping a family member? Or contributing to a cause you care about? Just as taking stock is a great starting point on the road to financial independence, so too is knowing where you want to go. List your financial goals, and break them down into a realistic timeframe. Then come up with small ways you can work towards them. When you get there, reward yourself in small and meaningful ways to celebrate the occasion.
Research any major purchases ahead of time and gradually work towards them
Of course, there will be purchases you’ll want to make along the way. Some small, and not so small (review the bit about discretionary and non-discretionary spending, as-needed). Make note of what you need and/or want to buy, and plan for these purchases, especially if they are large. You work hard for your money, so take time to research your planned purchase to make sure you get the best deal for what you want.
See also: This is how to master a no-spend month.
Don’t fall for lifestyle inflation
You might not have heard the term “lifestyle inflation,” but chances are you’re familiar with the concept. The idea is that you spend more as you earn more on items you don’t need, just because you can. But don’t fall into this trap, as it robs you of the opportunity to pay your future self by way of savings or investments.
See also: 20 Canadian jobs that pay more than $300K.
Find a financial planner you trust
Not all financial planners are created equal, so find one that works for you and that you’re comfortable with. Financial planners can help you further get a handle on your finances and plan for the future, just be sure to do your research first.
Look ahead towards retirement (no, we’re not kidding)
While it may seem ridiculous to start planning for the end of your career just as you begin, this will maximize the opportunity to save for your future self (it comes at you faster than you may believe). Plan for this now, and your future self will thank you.