Four Money Tips for Young Professionals
It’s exciting to live in the Washington metropolitan area as a young professional. There are plenty of social activities in the city, and nature hikes are close by. I just enjoyed tubing and hiking last weekend with my Ultimate Frisbee friends at Harpers Ferry – loads of fun!
As we enjoy life, it’s also good to take care of our finances. We’ll be able to squeeze more out of our money, and help us live in financial freedom. Here are four tips to be on the right track:
- Take care of your credit score
Credit bureaus assign all of us a number between 300 and 850. This indicates the likelihood that we will pay back a loan. The average credit score in the DMV area is around 670, just above subprime category.Your credit score will significantly affect your ability to save money. The higher your score, the lower your rates can be on your future car loan or mortgage. For a $300,000 condo, bumping up your credit score from 680 to 760 can potentially save you more than $20,000 in lower interest payments!If you don’t take care of your score, the results can be painful. I met someone who was denied a mortgage application because his score was so low due to several missed payments. Some employers also look at your credit report, especially for government work and jobs that require access to money.Use only 1-10% of your credit limit. If you use more or carry a sizeable balance, your score will go lower. If you’re in grad school, using your credit card to pay tuition may seem like a brilliant idea to get rewards points, but if you are using most of your credit limit, your score might tank.Read more tips at myfico.com on how to improve your score.
- Avail of your employer 401(k) match
A 401(k) plan enables you to set aside money for retirement. Many employers will match your contributions up to a certain percentage of your salary. If you contribute $100 per paycheck, your employer might match that. That’s more than $2,000 a year in free money!Ask your HR what the deal is on your company’s 401(k) matching. If your budget is tight, start with a small percentage, say 3% of your salary. And try to increase this each time you get a raise.When you enroll, you’ll be asked to choose which funds your money (and your employer’s match) will be invested in. These funds represent various types of investments and also differ in fees. It’s best to consult a financial planner on which 401(k) funds to choose from, to optimize your money’s growth potential. It can mean a difference of tens of thousands of dollars over the long-term. - Contain rent
Our summer intern recently got a full-time job, and she asked me how much she should spend on rent. I was really glad she asked me that question!
Having lower rent payments makes it easier to save for goals like travelling or a house down payment. Many share apartments with roommates, or avail of free rent by living with parents for as long as they can.
The right amount will depend on your priorities. If you’re a young parent who is willing to pay a premium to be near good schools, it may make sense to pay that extra $200/mo.
Create a budget and allocate money to your various priorities (current obligations, travel, saving for your future) and see how much room you have to spend on rent/mortgage.
- Find alternate funding sources for grad schoolHaving a Master’s degree expands our opportunities, but it can also mean taking huge amounts of debt.Think of creative ways to finance it. Ask your Delegate or State Senator for scholarships. Many offer awards, and very few people know about them.
Ask your graduate program for a scholarship. One of my clients used the financial plan we prepared to persuade her graduate program to give her a $5,000 scholarship!
I hope you have decided to act on at least one item from the tips above. If you’d like to make sure you do all of these things methodically, consider working with a financial planner from District Capital. We enjoy working with young professionals, since we can make a bigger impact and help them live in financial freedom. Sign up for a free discovery meeting to see if it’s a good fit for you.
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