Starting out with your own personal finance?
You just graduated from school and got accepted to your first real job. You’re excited to start your career and start making lots and lots of money and become financially independent. So, now what? where do you start?
First things first
Before you go off buying a brand new car and going on a month-long trip to Europe with your first paycheck, think about insuring yourself against unforeseen circumstances such as a layoff or unexpected expenses such as medical bills or accidents. The need for establishing and funding an emergency fund should be #1 priority.
This emergency fund allows for time to recuperate from any unforeseen emergencies (hence the name of the account) that may require a large amount of cash at one time. This can be for sudden loss of income due to termination, illness, accident where you would need the money to sustain living (housing, food, etc), or can be for sudden expensive medical bills or other unexpected costs that may occur such as funeral costs, car accidents, etc. This allows for time to find a new job, heal and get better from an illness, and to be able to slowly build the emergency fund back up without having to dip into savings or racking up credit card debt.
How much is enough?
The next question is generally, “how much should I have saved in an emergency account?”
That number will vary from person to person or family to family because everybody will have unique spending habits and monthly expenses. It is generally recommended to have 3 to 6 months of expenses stashed away in an account strictly for emergency uses only.
First, you need to figure out how much money you spend each month.
Other expenses: $150
In the above example, $1,850 would be your monthly expenses. Start by saving up one month’s worth of expenses, and it can only go up from there.
You can start by putting a little bit of money aside each month into an account that you never touch. Any amount you can spare would be a great start. Setting automatic transfers every month will make this easier and you probably won’t even miss the money that’s being put away for your rainy day fund.
Once you hit your mark of one month’s worth of expenses, go for two, until you save up to six months worth.
After you’ve set up your emergency fund, you can start paying down debt to start your journey to becoming financially free.