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Financial Advice for Beginning Adults

June is traditionally filled with graduations and weddings, rituals that mark two of our most important life transitions. Whether you are a graduate walking across the stage or a newlywed walking down the aisle, you’re focusing on your future. It’s a perfect opportunity to think about what you need to do financially to provide for that future.

Here, adapted from a column I originally wrote a few years ago, is what I might call “Life Planning 101 for Beginning Adults.” It’s a summary of my best financial advice for graduates, newlyweds, and anyone else just starting out in their adult lives and careers. Here’s how anyone can manage money wisely to create a life with more security, flexibility, and opportunity.

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1. On every gross dollar you earn, pay your taxes first. Estimate your total tax liability and be sure your employer withholds enough to cover it. If you are self-employed, set up a savings account, deposit a percentage of every check, and use that money to pay your quarterly estimated taxes. Never “raid” these funds.
2. Save for the future by putting away 20% or more of every gross dollar you earn until you have six months to one year of living expenses in an emergency account. Then begin investing in your employer’s 401(k) or a retirement plan. If you are self-employed, set up a retirement plan that will allow you to invest as much as you possibly can. My co-authored book Conscious Finance includes a chapter on how to begin investing.
3. Set up a short-term savings account for future lump sum expenses like car and home repairs, vacations, holiday giving, college tuition, and medical emergencies Figure out how much you’ll need to save from each paycheck to fund all of them annually; then, if possible, have your employer automatically send that amount to a savings account.
4. After you’ve taken out for your taxes, long-term savings, and short-term savings, you get to blow the rest any way you want. For most people, this means living on 30 to 60 cents out of every gross dollar you earn.
5. To maintain a comfortable lifestyle, spend frugally. Shop sales, clip coupons, read labels, compare, and bargain. People who build wealth usually don’t wear designer clothes, drive luxury cars, live in extravagant houses, or shop at Neiman Marcus. They typically wear jeans bought on sale, drive Fords, live in middle class neighborhoods, and shop at Walmart.
6. Pay cash for everything but your home. For convenience, you can use a debit card. Never use a credit card unless you pay it off every month. If you ever find yourself unable to pay off your card, cut it up. Pay off the balance as quickly as you can, and then don’t use a credit card for at least one year.
7. When you get a raise, a new job, or a promotion, don’t change your lifestyle. Save at least half of the increased income.
8. Your career is your number one financial asset. As much as possible, find a job you love. Invest in educating yourself and keeping abreast of changes in your career field.
9. Use money as a tool, not a goal. Money itself will never give you meaning or make you happy, but it is a valuable tool to support your quest for meaning and happiness.
This self-disciplined approach isn’t going to help you get rich in a hurry. What it will do is establish a lifetime pattern of sound money management. It can help you create a satisfying, responsible relationship with money now as well as a secure, prosperous future.

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