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Question:


I'm in my mid-20s -- done with college and working my first 'real' job. How would you suggest prioritizing my finances to make sure I'm in a sound fiscal situation for the decades to come?
-24YearsYoung


Answer:


Financial advisors encourage their clients first to plan for events that are unforeseen and could strike at any moment, such as a health problem or unemployment. A common recommendation is to accumulate enough cash to live on for six months and keep it someplace safe, like a bank account or money-market fund.
 
Once you have that squared away, identify your financial goals and determine an order of priority based on any criteria you like: career or family plans, expected financial circumstances, whatever. Then do a budget to calculate how much you can save each month. A common formula is to add up all of your necessary expenditures, tack on an extra 10 percent, then figure on saving the rest.
 
Financial advisors often suggest that you put at least some money toward each of your goals every month. Say you’d like to save for retirement and a down payment on a home and also pay off student loans or any other debt you may have. You might decide to allocate as much as possible to the 401(k) at work, if there is one, in order to capture tax breaks and matching contributions and then set aside equal amounts toward clearing the debt and saving for the down payment. What’s important is not how much you save, how you apportion it among your various goals or even what the goals are, but getting in the habit of saving. That should help set you up for the future, whatever it may bring.
-Conrad de Aenlle



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