Hopefully, you sat down and created your spending plan that I outlined in my previous post. If you are having some trouble with spending too much, you can find some great posts on this site that will help including: Furnishing Your Apartment for Cheap, Lowering Your Electric Bill, and Saving Money on Food.
The goal of this post was to explain to you the importance of 3 personal finance aspects that will take you very far in the world financially. I call them the Financial Rules to Live By.
Rule #1: Earn As Much As You Can
The most important investment you will make is in yourself. Make it a point to learn as much as you can. Get your employer to pay for graduate school. The more you learn and educate yourself, the better.
In your career, don’t just do what your job description says. You need to find a way to make yourself invaluable. Listen to what your boss complains about. Can it be something you can fix? Do whatever you can to make your boss’s life at work easier.
On top of this, work on special projects. Keep records of everything. If you get your review in December, make a meeting with your boss in June. Review your progress. Tell them you would like a raise of 10% and ask what you have to do to earn that. Do not give an ultimatum that you get the 10% or you leave. Realize that some things are out of his/her control. If you wait until your review, the budget is already set. You’re getting whatever you are told. There isn’t much negotiating. In June, the budget isn’t set. If you are invaluable, your boss can put in some good words for you. He may not get you the 10%, but it will be better than 2-3%.
Rule #2: Save As Much As You Can
This isn’t saying to not spend any money. It’s simply saying, live within your means. If you are fresh out of college, you don’t need a new car, the biggest apartment you can find and designer clothes. At the end of the day, none of this matters. Continue to live the “college lifestyle”. You don’t need to eat Ramen noodles for every meal, but you don’t need to eat out at five star restaurants every night.
The more you have saved, the quicker it grows because it compounds upon itself. I have friends that are quarter millionaires and in their twenties because they save as much as they can. You wouldn’t know it looking at them. That’s not to say they look poor, because they don’t. They have an average house and cars that are a few years old. Conversely, I have friends that are struggling to get by. You wouldn’t know it by looking at them though. They have an incredible house and brand new cars. But they are up to their eyes in debt.
Avoid credit card debt and as many loans as you can. Learn to pay for things in cash.
Rule #3: Invest Wisely
When you start your career, invest at least up to the company match in your 401(k). It’s basically free money. From there, maximize a Roth IRA if you are eligible for one. Then start increasing your contributions to your 401(k) until that is maxed out. After these accounts are maxed out, you can start investing outside of retirement accounts.
When it comes to picking investments, pick low cost mutual funds that track an index. It may sound boring, but it’s a winning strategy. Active funds rarely beat the market, mainly due to the high fees you are charged. Most investors ignore fees because a bill does not come in the mail. But trust me, they do make a difference.
If you are unsure of what determines a good mutual fund, check out this post on mutual funds as well as other details in selecting a mutual fund in this post. They will point you in the right direction.
I’m not saying that living within your means, investing in yourself and your career and maximizing investment accounts is easy. It’s not. Especially with advertisers bombarding us from every angle all day long trying to convince us to buy their products. Do your best to tune out this noise. Stay focused on needs versus wants. Remember that just because it looks like others have more than you, looks can be deceiving.
Finally, don’t put off your future until tomorrow. It is much easier to save for retirement when you first start out versus when you have ten working years left and haven’t started.
This post was written by Don, a staff writer from MoneySmartGuides.