Whether you have it or not, money is stressful. It can drive marriages apart, get you in debt, or give a false sense of happiness in life. The older we get, the more weight is on our shoulders preparing for living arrangements, raising a family, and making sure you have enough funds to live off in the future. As we coast through life, there are several situations that will not only be stressful, but that will be the largest financial decision you will need to make, so it is imperative that you prepare to the best of your ability, not only for your sake, but your family, present and future.
An Unexpected Emergency
You never know when a huge unexpected expense may come, so it is good to have a little financial cushion just in case. If you add up all of your normal expenses in a month (mortgage, utilities, bills, spending), experts have said that you should keep between three to six months’ worth in an account in case you need to access for an auto repair, home improvement, or even to provide some relief until you are newly between jobs. Keeping this stash of cash will ensure that these out of nowhere expenses are not put on a credit card, where you never know when you will be able to pay that balance off.
New Home Purchase
Not only will you need to make sure you have a solid down payment to avoid mortgage insurance (when loan exceeds 80% of the home value), you will need to make sure your credit and debt ratios are in line so that you can take advantage of the best interest rates available. Any rate increase due to credit could cost you hundreds of dollars a month just in interest. It would be wise to not rush into a home purchase until you are sure you can easily afford, contrary to what the bank tells you. Also keep in mind the mortgage payment in case you were to lose your job, you want to be able to cover that mortgage payment even if you were to have a lower salary. Prior to applying, do your best to pay off any outstanding debt to ensure your debt-to-income ratios look solid for approval.
Sure, it may be the furthest from your mind when you start your career, but think about how long you have been out of college right now and how fast that went by. Pretty soon you will be heading off into the employment sunset to enjoy your golden years, so it is best to be prepared and funding your retirement account as early as possible. Not knowing where to start? Well if your company matches contributions to 401(k), at least put that much in, as otherwise you will be leaving money on the table. Besides that, using a retirement calculator will give you a better idea of how much you need in retirement, and how much you need to contribute to reach your goal.