Graduating from university and becoming a young professional is a huge achievement as you have passed through the rigours of school and you are ready to contribute to the work world and build a career.
While all of this excitement is good, it’s very important that you start to learn the basics of money management in order to avoid living paycheck to paycheck and start to build wealth. It’s also critical that you develop habits that will help you to get good at managing money.
If you are a young professional fresh out of school, keep reading and learn more about the habits to avoid living paycheck to paycheck so that you have the proper foundation to build wealth.
It is no secret that many people are living paycheck to paycheck and this is a phenomenon that touches a wide cross-section of households. From those making $30,000 a year to others whose income is over $100,000, paycheck to paycheck living can happen to anyone. But this does not have to be your story, there are habits you can develop to avoid this situation.
Habit #1: Have a Money Vision or Goal
This habit is oftentimes overlooked as most people spring into action without considering the reason behind their money decisions.
The first step in avoiding living paycheck to paycheck is getting clear on your money goals and vision. You need to have an understanding of what your money goals are and determine the plans you have for your financial future.
A simple way to having crystal clear money goals include the following:
- Writing down your financial goals like “I want to buy a house in 5 years” or “I want to pay off my student loans in 3 years”
- Deciding on how you intend on making these goals a reality. This includes making a list of ways to get there like: setting up a savings account and making extra payments to your student loans every month
With these concrete goals and ideas in mind, you will be better prepared to face your financial future as you will have a plan to work towards. These goals will also help you to remember why you are doing this, making it even more necessary to do.
Habit #2: Set Up a Budget to Avoid Living Paycheck to Paycheck
To avoid living paycheck to paycheck every month, you simply need to set a budget.
This is absolutely important because you need to know where your money is going and how you intend to keep your expenses under control.
Setting up a budget is critical because it allows you to track your income relative to your expenses.
With a budget you get to decide where to allocate your funds and it is the best way to take control of your expenses and will help you to avoid overspending. This will let you live within your means which is the simplest way to maintain a strong hold on your finances.
Habit #3: Set up a Foolproof System to Pay off Your Student Loans
Many young graduates are leaving school with student loans and while it is tough to start your career riddled with debt, there are options available to pay down this debt.
Along with knowing your budget, it is critical to know how your student loan is structured.
Find out how much you actually owe, the interest rate that is attached to your loan and the time period you have to work within to pay off this debt. Also, you need to know how much is your minimum payment every month.
Once you know all these details, you should set up a system to pay off this debt. Some options include paying extra money toward your student loan every month and taking on a second job to make extra money to pay down this debt.
Habit #4: Automate Your Savings Account
Another habit that will help you to avoid paycheck to paycheck living is setting up an automatic savings account to get in the habit of saving money.
Saving money is a critical part of building wealth and when you automate your savings, you are able to watch your money grow without worrying about manually allocating funds to your account.
Habit #5: Start an Emergency Fund
An emergency fund is money that you put away in the event of an emergency or critical situation that is unplanned.
With this money you can pay for sudden expenses such as a medical bill or your car breaking down. This fund is not to be used for regular bills or to fund an expensive vacation.
To start, aim to save at least $1000 and add to that amount as you start to get more experience in your career and make more money.
A more advanced emergency fund is where you save up to 6 months of your monthly expenses in the event of a job loss or unexpected occurrence such as illness.
Having an emergency fund will enable you to avoid living paycheck to paycheck because you will have some savings to cover unexpected bills and help you to stay out of debt.
Habit #6: Pay Off Your Credit Cards in Full Every Month
Another way to manage your paycheck every month as a young professional is to try as much as possible to pay off your credit cards in full every month.
With this strategy, you will not be carrying a balance and will avoid incurring very high interest rates which can become very difficult to pay off.
The simplest approach to managing your credit card is to only use the card as long as you know that you can pay off the balance at the end of the month.
How do I get away from living paycheck to paycheck?
As a young professional, following these simple tips can help you to get away from living paycheck to paycheck and will help you to start building wealth right away. These are some of the best habits to avoid living paycheck to paycheck and if applied in the right way, will get you on track to financial freedom.
If you are looking for more financial resources to help you to build wealth you can check out our stop living paycheck to paycheck guide and grab our 90 Day Money Action Plan as well.
Tell me, what other habits do you think will help you to avoid living paycheck to paycheck?
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