Manage Your Money!
Well, not so fast: before you start buying cool things like brand new wine glasses and Franzia, follow these basic financial rules:
Make a Budget
First of all, if you own your own jet or flying car, stop reading this column immediately and buy me something awesome (like a flying car). If you are, however, with the rest of us, you might want to consider making a budget: a list of all planned expenses and revenues. First, put a set amount of your salary into a savings account (the ‘rainy day’ fund) that’s working towards saving six months of salary in case of emergencies or other mishaps. After you’ve set aside that amount, you can then allocate the rest of your total net income in a variety of ways. Remember, these are guidelines, not rules; the point is to make a plan and stick to it!
Pay Down Debt
If you helped or were forced to pay for college, you may enter the job force full of student loans, which generally take the ugly form of the Stafford Loan (8.25% variable rate) or the Federal Perkins Loan (6.8%). The interest rate refers to the price you pay for the money you’ve borrowed, expressed as a percentage over the period of one year. After graduating you receive a 6-9 month ‘grace’ period, after which the government requires a monthly minimum payment.
My advice: PAY MORE THAN YOUR MONTHLY PAYMENT. A LOT MORE. There are no penalties or fees for doing so, and you’ll pay less in interest over the loan’s life.
Understand Your Taxes
While there are a lot of very heavy books written about taxes, it may behoove you to stop curling them and instead open them. For taxes, the US government takes a certain percentage of your salary, which pays things like income, social security, and Medicare tax. Furthermore, you can put a percentage of your salary into a 401(k) plan, a type of employer-sponsored retirement plan that has the advantages of a) compounding your money, and b) lowering your legal reported income so you pay less. Understanding this is tricky stuff, so you might want to schedule a meeting with a financial planner who can help explain things. There’s also www.irs.gov, possibly the scariest website after this one:
Just grab a beer and I’m sure you’ll make it.