After landing your first job as a graduate, having steady income may seem like both a blessing and a curse. On one hand you now have the ability to spend on things you want, while on the other, you are now responsible for balancing that against your living expenses, taxes, and need for savings. How do you balance both?
One of the first challenges that fresh graduates often face is managing finances in the present while still keeping the future in mind. While this may seem daunting, understanding the flow of money is crucial to maintaining control. So here are some practical points to consider as you plan your journey towards better financial stability.
Build Your Emergency Fund
One of your earliest immediate priorities should be to store up an emergency fund. This fund acts as a safety net for unexpected expenses like medical bills, hidden fees, or car repairs. It can also help keep you on your feet in the event that you have a temporary loss of income – such as when you’re in-between jobs, for example.
The ideal benchmark for this fund is at least three months’ worth of your salary, or six months’ worth in the best case. There’s a good chance it will take you a while to get to this stage, but do your best to get there as soon as reasonably possible.
This may require you to live a bit more frugally within the first two years of your career and allocate a greater portion of your monthly pay into savings. You may have to sacrifice some comforts in the short term, but once your emergency fund is secure you can allow yourself more flexibility again!
Be Wary of Lifestyle Inflation
Lifestyle inflation is when your spending rises alongside an increase in your income. While spending more on yourself isn’t a bad thing (Because you do deserve nice things too!), it’s important to keep track of this so it doesn’t get too out of control.
Start by differentiating between needs and wants each month. Prioritize spending on essential needs first before indulging in wants. This is especially pertinent for recurring expenses such as rent, car loan instalments, memberships and subscriptions, etc. Some of these may not seem like much individually, but they can add up to quite a bit over time. Ask yourself whether you really need a bigger apartment, a better car, or that gym membership right now.
In this age of social media, avoid falling into the FOMO trap. Don’t try to match your peers' alleged living standards, vacation plans, choice of vehicles, or dining preferences. Everyone has their own circumstances and personal financial journey to make. You just need to focus on yours.
Pay Off Your Debts Regularly
Debt can be detrimental for fresh graduates. If you had to take on debt to fund your studies, then paying it off should be a top priority, especially if it incurs higher interest rates than your potential savings.
While certain debts with low interest rates may seem less urgent, it's still advisable to clear them swiftly to avoid potential complications in the future. For example, even though PTPTN falls into this category, expedite the repayment process to alleviate future financial burdens.
Apply for a Credit Card and Build a Credit Score
Establishing a solid credit history is essential for future financial undertakings, such as applying for a mortgage to buy your first home. The best way to begin building a credit history (or credit score) is to apply for a credit card and use that fairly regularly.
However, responsible usage of credit cards is key – especially if you’re on a graduate salary. Treat your credit card the same way you would a debit card. Limit its usage only to expenses that you can immediately afford. Ensure you pay off the credit card bill in full every month to maintain an excellent credit score.
Your credit score is also linked to any other outstanding debts you may have. This just underscores the importance of servicing your existing debts consistently, as stated in the previous section!
Sign Up for Basic Medical Insurance
When it comes to insurance, the only thing most fresh graduates without ongoing medical conditions will really need is a basic medical insurance plan. Take advantage of the lower premiums while you’re still young and sign up for a plan to give yourself more security in terms of future medical expenses.
You may be wondering whether it’s worth it to invest more on additional insurance riders or plans at this stage. The general answer is: not really. Most current riders or plans that can be afforded on a graduate-level salary are mainly just upsells that benefit the insurance company more than you. Closer examination often reveals that you won’t get very meaningful returns on those, or that the payouts are limited to very highly specific circumstances only.
Stick with just a basic plan for now. You can always revisit your insurance needs later on in your career as your earning potential grows.
Don’t Forget to Live a Little
Still, after all is said and done, remember that balancing financial responsibility with personal enjoyment is crucial. Set aside a small budget for leisure activities, experiences, or hobbies whenever possible to maintain a healthy work-life balance. You deserve to treat yourself every now and then and enjoy nice things too!
In particular, try not to skimp on better food. It may cost a bit more to eat healthier right now, but this helps offset the risk of more expensive health complications further down the line. Don’t starve yourself or cut corners on food just to hit financial goals. You can even get affordably-priced healthy food at a hawker or a mamak if you know what to look out for.
Your health will thank you in the future, and you’ll feel happier in the present moment too!
