You have your first real job. What should you do with the money you earn?
There will be many choices, but if you get in the habit of spending a lot just after payday and nothing just before, you will have failed to notice the money you earn today is for more than spending.
A more organized approach involves five steps.
Step 1 is step 1 because you do it first. It will allow you to know how much should be diverted to the past, the future and why.
There are many parts to step 1 and they need not all be done at once. Priorities for some people will be different than for you. Use judgement as to your priority.
- Have Powers of Attorney for finance and personal care. If something should happen to you, be sure someone can control the events that follow. Once you are the age of majority things are a little more complicated.
- Have a long term plan. It will be fuzzy in the beginning but the direction should be clear. I want to be independent. I want to have choices. I want to be able to have a family. Things like that.
- Decide on a lifestyle that you can live with for now. If you minimize lifestyle, you can eliminate those pesky student loans and save for the things in your long plan. It does not mean give up everything, it means do what you value most and skip the rest. Frugal, not cheap. Zen.
- Have a budget. Know what your monthly costs are and how they vary. Save and pay debts first and live on the rest. If you have not outlined your living costs in some detail, you will have surprises.
- Have an emergency fund. Could be a line of credit at first. Life is not fully predictable.
- Have accident and sickness insurance to cover your living and required savings and debt. Your income is your most valuable asset, be sure it is as well covered as your guitar. Disability income insurance is the technical name. Critical illness coverage might be worth investigating too.
- Have life insurance to cover off your obligations and final costs. If you look in your alumni magazine you will find In Memoriams for many young people. It does happen. If you are the only one counting on your future income, the amount required will be quite small.
- Have a will if there is even the slightest complexity or value.
- Learn about money, investing and taxes. The knowledge will grow as you have more to care about and it will be of use for your entire life. Invest a little just to establish the habit.
- Learn how to use professional advice. Most people never learn this and the cost is significant. You hold strategic ideas. Professionals are about how to do it. You can afford neither the time nor the effort to keep up to the necessary tactics.
A plan well begun is much more likely to succeed. If nothing else, a strong beginning will permit some mistakes or mishaps along the way and it will still survive. Durability starts here.
Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario. In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.
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