OVER THE MAY TO JULY PERIOD each year hundreds of young adults take the formal first step into the work world. Making a successful transition is reflected in a major way by how personal finances are handled.
The measure of your personal finances rests on your ability and capacity to manage your budget, to establish a good personal credit rating, to protect the investment in your development, maybe to purchase a vehicle, furniture and other possessions, to move into separate lodgings from your parents or guardian and to start savings for emergencies and/or towards retirement.
Getting that first job can be stressful yet so exciting. The competition for the fewer and fewer jobs to be had may force many young adults to develop their entrepreneurial skills. Nevertheless, it is also the most pivotal time for establishing sound financial habits.
The recommended way to exploit your work opportunities is to prepare and manage a budget. Carefully note your monthly pay, net of all the deductions. In the early stages of working, it may be useful to keep track of how you actually spend every cent and compare that record to how you think you spend or even how you may have planned to spend. Also, your aim with a budget is to meet all of your costs from your earnings and avoid building up debt that would be difficult to repay.
A credit card is best used as a convenient way of paying rather than of accessing a loan, otherwise you will be paying part of your income as interest. How you use credit, particularly that first credit card, will help to determine your credit rating.
Joining a credit union is recommended. Credit unions offer supportive help with budgeting and credit; you will have a say in the management of the credit union and be entitled to refunds on loan interest paid depending on the performance of the credit union.
Repaying your student loan or other financer of the cost of your studies is also a priority. Even if your parents/guardian or friend supported you and expect no repayment, a gift bought from that very first pay cheque would be a touching symbolic gesture.
Can you afford to purchase a car? There is the economics of this choice as well as the budget fit. That is, it may not fit into your budget without loan support, however, if having the loan allows you to earn commensurately, then that make economic sense. This will also apply to the purchase of consumer items like furniture and appliances and whether you should rent an apartment.
Two other recommendations for establishing sound financial grounding at this stage are the purchase of term insurance for, say, at least six times your starting salary, and starting a retirement savings plan even if with a small instalment. Term insurance builds no cash value over time yet provides basic insurance coverage, so it tends to be lower in cost. In the short term, this insurance policy will protect the investment made to date in your development. In the longer term it can serve as support in purchasing real estate or other long-term asset.
Early voluntary contribution investment in retirement, either through your employer’s corporate plan or a personal plan, will help reduce cost of retirement planning at a later stage in life.
• Louise Fairsave is a personal financial management adviser, providing practical advice on money and estate matters. Her advice is general in nature; readers should seek advice about their specific circumstances.
This column is sponsored by the Barbados Workers’ Union Co-op Credit Union Ltd.