Get Ready to Manage Your Cashflow
It’s important to go over a few basic things before getting a job so you have a place to put the money you earn and a good way to manage your cashflow, if that’s not in place already. What do you need to gather, and what do you need to do? This post will go through that so that after you complete these steps, you have the basic infrastructure in place to manage everyday finances effectively. Subsequent posts will build on this, explaining other financial instruments for growing your net worth.
- Setting up checking and savings accounts
- Getting a credit card and using it responsibly
- Being aware of and careful about protecting your identify information
Setting up checking and savings accounts
When you start a new job, you need a place to put your money. Direct deposit, where an employer puts your net pay (your pay after tax and benefit deductions) directly into your bank account with no ongoing action on your part, is practically universal nowadays. To use this, you’ll need to set up a bank account before you take a job. Follow the steps in this link to decide on a bank you want to keep your money with: How to choose a bank: 6 features to look for - Money Under 30.
Once you’ve chosen your bank, contact them or go to their website and follow the steps they give you for opening a checking account and a savings account. They’ll tell you what information you need to provide and how to establish access to your account online to manage your money and information ongoing.
It’s a good idea to keep a month’s worth of expenses in your checking account to mitigate the risk of overdrawing and having to pay the bank a penalty for that. For your savings account, keep an amount of emergency funds worth at least six months of expenses that you can’t afford to cut back on; this may be a small amount or a larger one, depending on your hard financial requirements. Anything beyond this is better invested in financial instruments that will give you a better yield, and that will be covered later in the Financial Building segment.
Here are three more articles you should read about emergency savings:
Getting a credit card and using it responsibly
If you’re an especially undisciplined person, especially when it comes to making impulse purchases, you might want to carry cash instead of a credit card. But if there’s any other way you can overcome your temptation to overspend, a credit card makes transactions a lot faster and more convenient. The key here is to always be able to pay off your statement balance before the due date on your credit card statement each month. Doing this diligently each month has three significant benefits:
- Don’t pay late fees by paying late – you’re just throwing your money away
- Don’t pay interest by paying less than the statement balance – you’re just throwing your money away again
- Build strong credit that raises your credit card’s credit limit and helps you finance future purchases like a vehicle or a home sometime in the future
Set a conspicuous monthly reminder to prevent you from forgetting to pay your statement balance on time, even if you think you don’t need it. Credit cards typically have notoriously high interest rates that can spiral your finances out of control if you’re not careful. If they’re not already reaching out to talk to you, talk to your parents or other older relatives, or a mentor you trust to talk about credit card use to ensure it makes your financial life easier instead of more difficult. Money Under 30 also has a good article about this topic: How to use a credit card responsibly - Money Under 30.
Sometime in the future when you want to apply for credit, three main credit reporting agencies will be able to calculate your credit score (also called your FICO score). Creditors you request a loan from will want this, and it’s good for you to be aware of roughly what your score is:
- Equifax: Equifax | Credit Bureau | Check Your Credit
Being aware of and careful about protecting your identify information
Most people reading this already know this part, but it’s here for the few who might not. Be careful about sharing personal data like your birth date or social security number. If you suspect your identity information is compromised and someone may misuse it, you can temporarily freeze your credit by contacting the three credit reporting agencies linked above. Similarly, contact your bank or credit card company if you think your account access credentials are compromised or you’ve lost a card they issued you; they can easily mail you a replacement card with a new number.
Time is of the essence whenever a situation like this arises; be sure to contact the appropriate institution(s) immediately to mitigate the risk of identity theft damaging your finances or your credit.
Conclusion
By setting up a checking account, an emergency savings account, and a credit card with a plan for its responsible use, you have what you need to efficiently manage regular cashflow. It’s important to know how to resist temptations to overspend or buy something that’s not really an emergency with emergency funds. Also, keep building your credit score in mind as motivation for diligent and responsible credit card use. Doing this will pay off in the future when it’s time to make expensive but important purchases that typically involve financing. Lastly, be mindful of where your identify information is sent to reduce the possibility of your information being misused and resulting in damage to your finances.
Set up these basic accounts as the foundation of managing your money well ASAP!
The next step on the roadmap, if you’re starting the Job Seeking content: Set Up a Job Seeker Account
The next step on the roadmap, if you’re starting the Financial Building content: A Balanced Budget for Fun Now and Fun Later
