Once you settle into your career, it is easy to become complacent with your finances. You have enough to pay your bills and put a little back each month in savings, so it is tempting to allow things to continue on auto-pilot. Not paying attention to your finances can cost you money and peace of mind if you hit a rough patch. Whether it is a personal issue, such as deciding you need to switch jobs or you want to cut your hours back, or there are changes in the workforce or economy that affect your bottom line, surprises can come out of nowhere, and you need to be prepared.
Fully Fund Savings Accounts with a Purpose
You should have between 3 and 6 months of savings set aside in an account that you do not use for any other purpose. The amount you save depends on your comfort level and the security of your job. When you are just starting to fund this account, you may dip into it for unexpected expenses, however, the goal is to have separate savings account for that. This account is to pay your bills and living expenses if you unexpectedly lose your job.
Once you have saved around 3 months’ worth of expenses for your emergency fund, you can transition to setting funds aside for unexpected expenses. Only you can decide on how much you should put in this savings account. Look back over previous years and see how much you end up paying for car and home repairs, veterinary bills, and other expenses that don’t crop up regularly. This can give you an idea of how much you should target for this account. By having an unexpected expenses account, you avoid having to put these on a credit card. Having this cushion not only saves you money but gives you peace of mind. Once you are comfortable with the amount you have saved for unexpected expenses, you can continue to add to your emergency fund.
Keep an Eye on Interest Rates
Interest rates are constantly changing, and you should take advantage of those moves. When interest rates rise, it costs more to borrow money, but it can be a good time to transfer savings into a high-yield savings account or put some excess funds in a certificate of deposit. It can be tough to see these gains evaporate when interest rates drop, but use this time to your benefit as well. It can be a good time to refinance student loans when interest rates are low. This is a quick and easy process and allows you to save money over the life of your loans.
If you own your own home, refinancing your mortgage when interest rates are low can allow you to shorten the term of your mortgage, lower your monthly payments, or both. If you are not a homeowner, this can be a great time to buy. Purchasing a home when interest rates are low can be a stressful and competitive process. While you will be able to afford more home than you would if interest rates were higher, other buyers will be in the market also. This can lead to a cut-throat competition for homes if supplies are limited. It is not unusual for homes to be snatched up at well over the asking price within days, or even hours, of being put on the market. You will have to decide if you want to dive into homeownership at this point or wait until the market cools some.
Keep Paperwork in Order
One sure sign of financial maturity is having your financial paperwork in order. This means having a will drawn up, but there are other steps to take as well. Have your financial documents in order, in a way that makes sense to the person who will have to deal with these matters. Have a beneficiary on all of your accounts. Make sure this information is up to date and accessible to the people who will need to access it. If you have others who depend on your income, you want to be sure that your life insurance will provide what they need going forward. Life insurance should provide a payout for between 7 and 10 times your salary. The amount should be higher if your beneficiaries will have significant debt to repay, and can be lower if there is less debt and your beneficiary is also earning an income.
Maintain Excellent Credit
There is more to a strong credit score than paying your bills on time. You need to have existing credit, use it, and pay it off to maximize your score. You should also keep your usage low on each of your cards to earn a high credit score. Finally, check your credit history at least annually to make sure it is correct. You don’t want to wait until you are ready to take out a mortgage or loan to discover errors that negatively impact your score.
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