The hardest thing when it comes to managing your money is just starting. It feels stressful and overwhelming at first, which leads to procrastinating, and it just becomes another chore. I get it, we're thrown into the real world with little to no guidance about how to manage finances and then all of the sudden you have a job, benefits, student loans, credit cards, the list goes on.
School won't teach you this, but the good news is I'm going to show you how you can start in less than an hour. But first, let me show you why you're going to be okay- you have one thing most people would die for...Time.
Now for your order of operations
Create a Budget
We're getting the worst part out of the way first. I'm well aware that creating a budget is no fun but trust me it's necessary when you start. There are far too many free apps out there that will track everything for you, all you need to do is connect your bank account.
The main goal with your budget is to understand your take home pay (net income), what your fixed expenses are (rent, savings, groceries, etc), and what your lifestyle (fun money) expenses are.
Start an Emergency Fund
This is simply a buffer so that you do not go into debt when life happens, whether that's your car breaking down, losing a job, or incurring some random expense. The reality is that these things happen, and you should be automating a fixed monthly amount to fund this account until you have at least three months of living expenses built up.
Bonus points for using a high yield savings account which will earn a more respectable interest rate than just sitting in a checking account.
Contribute up to your 401k match
By utilizing your 401k match you are essentially getting a 100% rate of return on your money guaranteed. There are not many guarantees in the financial space so take advantage of this one. Check your employee benefits handbook to see what the match is and then update your contributions to get the full match.
Tackle High Interest Debt
Next step is to start paying down that high interest debt, think credit cards or any other loans above 10%. Paying down high interest debt also offers a guaranteed return on your money. If you pay off a credit card at 27% interest, you just made 27% on your money. The last thing you want to do is let your debt compound and end up in what seems like a never-ending cycle of paying off debt.
Pay Down Low Interest Debt
For the most part these will be student loans but can also be any debt that carries an interest rate between 5-10%. The first priority is high interest debt, but for many you also need to plan around your student loans. Make sure you are utilizing every resource available to maximize savings on student loans.
Increase Investments
At this point you should have a fixed dollar amount that is going towards the items above. So where does the surplus go? I'm glad you asked. You will now start increasing retirement savings and adding to your 401k as well as accounts like a Roth IRA and even a taxable brokerage account. As a general rule of thumb, you should be aiming to save 15-20% of your income. You may not be able to right away but it's a goal you can work towards.
There you have it you just started your financial plan. Obviously, there are so many different factors that can go into this, keep in mind this is only the start. Once you have chipped away at those debts and you've built a foundation you can begin allocating more money towards specific goals. Depending on your personal goals you will start allocating money towards things like starting a family, buying a house, going on vacation, etc.
Remember that you have time on your side so whatever financial mistakes you may have made in the past can be fixed. The important thing is that you have to start somewhere and there's no better time than now. When you have a plan the feeling of being overwhelmed goes away.