So you did it: you graduated from college and/or grad school, and you landed your first real, bona fide, with-benefits, matching-401(k) job. If you’re like many gals, this means one hard-fact: you’re officially off your parents’ payroll (that is, if you were lucky enough to be on it in the first place!). What now? Read on for 5 steps to strike out on your own financially…
1. Get organized. Gone are the days of mom filing away your W-2′s in a safe place for the accountant to review come Tax Day. If you haven’t already, ask your parents (nicely) to send all of your important documents (W-2′s, birth certificate, car registration, etc.) your way and start a filing system of your own. Start with the basics — important documents, receipts, tax materials, lease information — and build in a few extra file folders to grow into (after all, you’re going to be making bank someday, right?!).
2. Set parameters. It’s easy to stick to a budget when it’s already been set for you, either by your parents giving you allowance or by saving money from your summer jobs. But it’s much harder when it’s just you, yourself, and YOU laying down the law. Start off conservatively, budgeting your living, food, and transportation expenses. Then hit the ATM for any extra “fun money” — but set a tight limit (say, 5-10% of your monthly paycheck). Take out just that amount of cash and stash it somewhere safe. When you run out, guess what? Show’s over ’til next month.
3. Your money, your rules. …To an extent. Now is the time to decide what is important to you, and what you can go without. Can’t live without your weekly Bikram class? That’s fine (really!). Sucker for your monthly mani/pedi? That’s fine, too (we mean it!). These small indulgences will keep you on track from splurging on other, unnecessary expenses. Just remember: you get 5-10%. So if Bikram is in, dinners out might be…out.
4. Squirrel it away. Your 20s and early 30s are your peak saving years, laying the foundation for those “big” purchases down the road (a car, a house, a family, etc.). However modest your paycheck might seem, develop a system to stash some of it every month. We like the automatic savings plans offered by many banks because they drop a preset amount of your paycheck into your savings account every month — you don’t even have to see it, easy peasy! Or you can get creative, for example by saving any $5 you receive in change, or by doubling the amount of “fun money” you spent at the end of each month into your savings.
5. Make it grow. Once you’ve developed a solid spending/saving regimen, it’s time to grow baby grow! Go to TD Ameritrade and sign up for an account (it’s free!). Use the “Stock Screener” tool (also free) to check off the following criteria: 1) start with an industry you know, like “Consumer Cyclical”, which is basically stocks in retail; 2) under “revenue growth”, click off above 15%-25% and under “EPS Growth”, click off above 15%-25%; this will give you a high quality company that is growing earnings quicker than sales, which is a must; and (3) and under “dividend yield” click off above 1.5%. Voila! This should narrow you down to about a dozen companies to choose from to build your first portfolio. Who said investing had to be scary?