Personal Financials 101



Nothing can compare to the satisfaction of cashing in your first pay check. But alas, it can´t all be spent on clothes and trips. As you become more independent, you get more responsibilities, especially financial ones. To help you understand personal finance, we have a few key concepts that may help you dive into the world of economics.

Establishing a budget is the most important aspect because it involves managing expenses and prioritising needs. In order to establish it, you must first acknowledge what you need to spend on, what you want to spend it on, and what you want to save for. You can use a spreadsheet on your computer such as Excel, a personal finance app like Mint or even just a journal to create your budget and keep track of your cash flow.

First of all, you must state your regular income and how often you receive it. This should always be your spending limit. Then come the expenses. List your recurring spending like rent, electricity, water and food; how much and how often you spend on each – it´s best if the recurrence of your expenses match the rent, for example, paying all expenses monthly. For a recent graduate, the most urgent expense is paying off student loans. Ever heard of a credit score? Try to always set a spending limit, keep track of your credit card expenses and keep your score right next to your written budget, this will come back and haunt you when looking to take out a mortgage so keep it relatively balanced.

Now for some life-saving recommendations. Health insurance is always a good and worthy expense. It may seem like a burden to pay out every year, but it could save you a lot of money in the long run. Economists and lifestyle gurus also recommend starting two different funds in your 20´s: an emergency fund -to be able to promptly pay for any kind of accident or situation- can be built by saving ten percent of your annual income, and a retirement fund. The second may seem like a stretch; why would we start saving up for our retirement when our careers are just starting to take off? As it turns out, the retirement stage of life for millennials is not looking so bright from a corporative perspective. We switch jobs and companies much more often than other generations, which makes a mess out of our retirement funds, so it´s better to start our own Individual Retirement Account early!

The rest is up to you. You might be saving up for a trip or a fancy dress for a big event, so set up a percentage of your income to save every month, and you’ll see how your saving account increases steadily. You can also dedicate a day or two each month for miscellaneous spending – you are allowed to go shopping every once in a while. Just keep in mind that tracking your expense is the key to a solid and stable financial life and becoming an independent woman!

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