Just Starting Out? Your First Financial Plan

Your first few years of financial independence are crucial in setting yourself up for a successful future. Make these habits a must, and you'll be on your way!

Always pay yourself first. No matter how much money you make starting out, put some aside from each paycheck. Consider setting up an automatic deposit from your checking to your savings account. The rule of thumb is to save at least ten percent of every paycheck. Adjust the amount, depending on what your personal goals are for not-too-distant future.

Be accountable for your spending habits. Are you an impulse shopper? An emotional shopper? The need to be aware of how you spend your money doesn't go away when you start making more. It may be hard to visualize how small changes can make a significant difference, but the little things do add up. Make tweaks to save, such as packing lunch instead of buying.

Establish an emergency fund. Your car might break down. You may get sick and have to miss work. You might even lose your job. Having a safety net in place may mean the difference between being able to meet your rent or having to move back in with your parents. Keep from two to six months-worth of living expenses tucked away (including rent, utilities, food, gas, etc.).

Set up a long-term investment account. Educate yourself as to what types of investment opportunities are right for you. Investing may involve risk, depending on where you put your money. A savings account at a bank involves almost no risk; on the other hand, buying a hot stock is risky, but it also has the potential for the greatest return. Find an option that matches your comfort level. And, never commit to an investment that you do not completely understand.

Don't get caught in the "credit card trap." It's easy to get in the habit of using a card instead of cash and spending more than you can afford. Only use the credit card if you can pay off the balance every month. If you cannot get by without charging, you are living beyond your means and need to make changes immediately.

Have an IRA ASAP. The Roth IRA (Individual Retirement Account) allows you to put a certain amount of earned income away every year, with the benefit of being able to take the money out in the future, tax-free. You can also take your money out of a Roth IRA and use it for other things besides retirement, like buying your first home. You decide where you want to set it up--whether it's a bank, credit union, brokerage firm, or through your insurance company. Be aware of any fees that may be involved.