You’re an idealistic, passionate, eager fresh graduate and you just landed your first job. When you received your first paycheck, you treated family or friends to a round of drinks. You’re excitedly looking for a more upscale apartment, and you can’t wait to go on retail therapy once you receive that shiny plastic card with a huge credit limit.
If you’re a young professional, you can probably relate to this scenario. Although there’s absolutely nothing wrong in enjoying the fruits of your labor, receiving your first paycheck is not necessarily the time to splurge.
In fact, this is when you should learn how to properly manage your money so that you would have something to spend in case of emergencies, and you can start saving up for the more serious stuff – including raising a family and retirement.
For yuppies or young professionals, managing their money is a huge challenge. There are those who are earning an overwhelmingly large amount, that they don’t know how to deal with it.
On the other hand, there are also yuppies who seem to live on a paycheck-to-paycheck basis. It’s not really because they are only earning a minimal salary, but has something to do with being unable to adjust their lifestyle based on what they are earning.
No matter which of these two categories you fall under, it is best to know how young professionals are actually dealing with the task of managing their finances, and which tips you can follow to save those hard-earned dollars in the process.
Top 8 Money Saving Tips for Young Professionals
If you’ve just recently landed a job with a decent salary, here are a few ways on how you can save money as a young professional:
1. Make lifestyle adjustments based on your current salary
Let’s say that you just landed an entry-level position at a mid-scale company in your state. When you were still in college, your parents financially provided for everything you need. Now that you’re living on your own and are supporting yourself, you do not necessarily have to follow the lifestyle of your parents.
If they can afford to take cruises to exotic destinations, become members at exclusive country clubs or regularly eat out at pricey restaurants, it’s because they are already past that stage when they are working for their keep. They have already earned the luxuries that they are enjoying. As a yuppie, you’re still at that level where you need to work your way from the bottom up – so adjust your lifestyle accordingly.
Although there’s absolutely nothing wrong with going out during weekends or buying good quality shoes, you still need to stick to a budget. Don’t buy anything that you can ill afford and while you are still saving up for that dream vacation, enjoy a lifestyle that is fun yet affordable.
2. Know how to handle paying off your student loans
One of the biggest financial responsibilities of those who are fresh out of college is paying off their student loans. For some, it takes years before they can fully pay for their student loans. When you land your first job and receive your first pay check, should you rush through the process of paying off this loan? Not necessarily.
If the interest on your student loans is low and it is tax-deductible, you can afford to not rush through the process of paying it off. The money that you can save can be put towards a house down payment if you’re planning to buy one; or you can save as early as now for retirement.
3. Drive a basic, reliable car
When you’re working, you would need a vehicle to get yourself to and from work. It might be tempting to purchase or even lease a fancy sports car but think of its overall costs and upkeep expenses. Even the car insurance premiums on luxury cars are higher than regular sedans, so think twice about making such a luxurious purchase.
While you are still in the process of climbing that corporate ladder, settle for a basic, reliable car. Learn how to change tires, or tune up the car so you won’t have to spend as much on car maintenance costs. Otherwise, make friends with a mechanic. That sleek red sports car that you’ve always been dreaming about driving can wait, at least until your next pay raise.
4. Never fall into the credit card debt trap
Yet another thing that yuppies would find to be a huge challenge is not overusing their credit cards. Once you receive that shiny credit card from your bank and you learn what its credit limit is, you might be tempted to swipe it for a fancy dinner or a shopping spree. The best way to use your credit card is to know exactly how much you can charge on it each month, that you are able to afford its full payment.
This way, you would not have to spend so much on late fees and penalties. Also, make the most out of the perks on your credit card. If you’re the impulsive shopper type, keep your credit card somewhere inaccessible that you would think twice about swiping it in a store.
5. Pay yourself first
When your salary simply breezes through your palms on a monthly basis because of all the bills that you have to pay, you are not really doing the work for yourself, are you? A good rule of thumb to follow when managing your money is to pay yourself first. Setting aside one-third of your income may not sound feasible, but it actually is. Make this your goal during the first few years of your work.
If you just got a raise, also increase the money that you are paying for yourself. Name the fund and use it for buying a house, buying your dream car, saving up for a month-long vacation or starting a family. You can even use the money as an inspiration to achieve not just your financial goals, but your lifelong goals as well.
6. Save for retirement
Even if you’re still in your twenties, you can already think about saving for retirement. There is no such thing as saving for a retirement too early. The earlier you do it, the more comfortable you will be once you finally get off the workforce.
Ask your employer about how you can set up an Individual Retirement Account or a 401(k) retirement account. A twenty-something who had a head start with a thirty year old when it comes to saving up for retirement will be better off in the long run.
7. Prepare for unexpected expenses
After setting aside funds for your credit card bills, rent, food, car expenses and clothing, make sure to also allot money for unexpected expenses. You will never know when a medical emergency might crop up, or you might even get laid off at your job.
For the latter, it is best to aside three months’ worth of your current salary as living expenses while you are still finding new work if you got laid off or lost your job unexpectedly.
Once you have this, still set aside more funds for unexpected or emergency expenses. Even a little money saved per month goes a long way.
8. Understand how income taxes work
Even before receiving your first paycheck, you need to understand how income taxes basically work.
Based on the amount that you are offered as a starting salary, how can you calculate your take-home pay after taxes? Will the amount be enough to settle all your living expenses, or would you need to take on a second job?
There are many online calculators that you can use which will show you how much you will be left with based on your gross pay, by calculating the taxes.
The same tool can be effectively used for calculating your living expenses if you were offered a higher position, but at a state where the living expenses are higher, for example.
When you understand how income taxes work, you will have a better idea about how you can gain more control of your finances as a young professional.
Another tax-related tip is for you to learn how to prepare your annual tax return yourself. If you’re earning a meagre salary, you might not be able to afford hiring a tax preparer, anyway, so sit down and do your homework on how to file your income tax returns.
A Final Word About Managing Your Finances as a Yuppie
As a young professional, you should take steps not just to guard your wealth, but your health as well.
Find work that you’re passionate about so that you would not dread the thought of getting up each morning to do your job which pays the bills. When you’re healthy and inspired while doing your work, the financial aspect of it will naturally follow.
By keeping the aforementioned tips in mind, you can get a better grip on your finances as a yuppie and live a financially rewarding, happy and fulfilling life.