If you’re a starter professionally, you are definitely stressing on how to pay off existing debt ( education loan or credit card bill) and saving for future goals simultaneously. It could be a long term like medical emergencies, retirement plans, or short-term goals like buying a fancy car, dream house, etc. Every need/wish depends majorly on your disposable income and what are your future aspirations. These young professionals should learn to finish off debt first & increase their savings.
The steps shown below can be used to make sure shot actions to manage money:
Step1: Create a budget
Create a concrete budget that explains top factors like disposable income, monthly expenses, and all debt altogether.
Prioritization ranks first to distinguish between essential & discretionary expenses. Essential expenses cannot just be compromised irrespective of what’s happening in the universe.
Take your monthly/annual income into account and subtract the fixed & variable expenses ( rent, EMI installment, utility bills, etc.) And in case you still have some money left, prioritize spending it too.
Step 2: Build an emergency fund
Even before you pay off your extra debt, it’s good to focus on reinforcing your emergency funds. All the steps are important to survive on a low income, setting up a contingency fund is the most important. This can have a major financial implication on your life & people related to you.
An emergency fund finds its base in anticipation of the worst like layoffs or health emergencies. Alongside this, you can have a separate bank account to keep this money away.
Keeping a separate account makes you more disciplined and pushes you to think twice before using it up.
Step 3: Contribute to your retirement savings
A retirement account makes use of tax-advantage which makes it critical. As a youngster, you don’t realize early that it’s a sought after way to protect against taxes. Every contribution can reduce your taxable income in that particular year. The money saved helps to generate more growth & interest to the existing earning.
It is extremely important to start early to take advantage of money compounding. Since you’ll have time as a young professional, you can start with small savings. The longer you invest your money, the better chance it has to grow.
Step 4: Pay off high-interest credit cards
When you’re young, you usually take a few credit cards for everyday shopping, Be it in college or more recently, you apply for cards with an introductory cut or low-interest rate. After the initial period cools off, the interest rates shoot higher than imagined, anywhere between 10-25%. Suddenly, your liabilities spike up towards paying more interest, which should be paid off as soon as possible. Additionally, you should look at mortgage or student loans which get deducted on your tax return, unlike a credit card offer.
Step 5: Pay off private loans
It’s a must to pay off loans taken from private loans on high-interest rates. It’s safe to keep government-sanctioned debt, they usually entail low-interest component. Interest is tax-deductible in some cases!