Finance 1-2-3: The money checklist for young professionals

“Beware of little expenses; a small leak will sink a great ship.” – Benjamin Franklin

It’s time for us to start talking finance on this platform, although I am not a financial advisor and I advise you to use the below for information only.

The moment you finish your last undergrad exam or submit the last assignment is a great relief! Shortly after, adult life quicked in, societal pressure pushes you to find a job so you can start generating revenue. Whether you are a new graduate or have been in a work field for a while, you need to ask yourself the following:” Do I know where I stand financially?”

1. Get to know your net worth

Your net worth is a difference value between your assets and your liabilities, it can be negative or positive. To put simply, the liabilities are your debts (money owed)  and the assets are anything you own that has a relatively substantially positive value. In order to perform this exercise, I recommend reading the Investopedia net worth article. Knowing your net worth helps you understand your financial state.

2. Apply the rent money theory 

If you live alone or contribute to your living space, applying this theory is simple, paying your rent should be put on your financial priority list (alongside food). On the other hand, if where you live is free, look at the housing/rental market, set yourself a realistic amount and save it every month automatically. Paying rent is important and key to economic discipline so being used to it even when you don’t need to, sets you up for success.

3. Set up a debt repayment plan 

If you have debts, this is the moment to have a look and set up a plan. There are many advantages to paying your debts. It helps improve your debt-to-income ratio, build your credit and strengthen fiscal health. A debt repayment plan is personal. You have to take a moment, summarize your debt, look at the different debt repayment methods (Snowball vs Avalanche) and choose what suits you best. 

4. Creating and evaluating your financial pie chart

A financial pie chart allows you to know your spending tendencies. By simply looking at your bank account pie chart results, which displays your spending distribution. Most banks provide this information but you can also do it yourself by downloading your monthly transaction report, classifying your transactions (food, savings, transportation, etc.) and generating a pie chart with the totals of each section. Data gathered for over 2-3 months should provide you with great insight into your current habits. Once done, set yourself a fixed and reasonable monthly leisure budget.

5. Apply the balance theory 

After assessing your pie chart, take all your necessary spending (food, rent money, leisure allocation, etc.) for a month, add your debt payment, subtract your income, the balance is the amount of money you should be saving/investing – more on that on another blog post. By doing so, you keep your finance simple and clear. Set up different bank accounts if it helps, that way you can automate as much payment/savings and investing as you can.

6. Set up a long-term financial plan 

Last but not least, this will help guide your career path. Often people make the mistake of only focusing on their career goals at the very start of it and forgetting about the money part. Having your financial goals clear from day 1, help indicates where you would like to go. You can’t just expect that the money will follow or that your employer will always be fair. 

The bottom line here is that you have to take your financial situation into your own hands, sooner rather than later. I hope this article guides you well to the basics. Feel free to leave a comment and tell me how you tackled your finance, or send me a personal email down below. 

On that note,

Josie Escapes…