Let’s assume you’ve graduated from college or a trade school, and you have your first job. There are a couple steps you can take right now to ensure future financial zen and prosperity.

1. Know Your Take-Home Pay. Make a detailed account of how much money you bring home, after taxes. Don’t think, I’m making $60,000, I’m loaded! Even if you’re making $70,000, your take home pay will not be $5,888 but closer to $4,030, if you live in an income-tax State.  So figure out your take-home pay. You’ll need it for reverse budgeting.
2. Spend Every Dollar of that Pay on Paper. Write the take home amount on the top of your page, Then list, line by line, fixed expenses like rent and utilities. Debts may also take a fixed chunk. Then other monthly expenses. As you move down the list include flexible amounts, like food and entertainment. Urgent, Important, Nice, and Worthless should be the order of priority. This exercise needs to be done before the start of every month.
3. Get Expenses Below Your Means. If your list depletes your income, and you’re still not done with your expenses, you’ve got a problem.  Time to find cheaper rent. It also may mean you have too much debt. Using a credit card to solve a cash shortage is not a solution, it’s a deeper hole.
4. Speaking of Debt. If you have a car loan and student loans, you have a problem. If you have credit card balances, you have an even bigger problem. I highly recommend Dave Ramsey Total Money Makeover for figuring out how to get scorched-earth, gazelle-like intense about getting rid of that debt as fast as possible. 12-36 months and debt-free is the goal. Everything else should take a back burner and luxuries should be put on hold. If you have debt, you cannot truly be free.
5. If You Have a 401(k) at Work. Regardless of your financial circumstance, I want to give you the very best piece of advice. No matter what, contribute an amount to your 401(k) (tax deferred retirement) or a Roth IRA (post tax retirement, grows tax-free). Because here’s the thing, (a) a saving habit, started early, is hard to break; and (b) compounding will begin to work in your favor. Remember the beginning about taxes? A 401K is like magic in your favor. You put away $50 per check, you only notice about a $35 decrease in your net pay, but $50 is in your retirement account. Magic.
6. Which Funds in my 401(k)? I could dedicate a whole other post to this, but one thing I recommend is picking 3-5 funds, mostly stocks if you’re young (ie., 70%), and bonds (30%). If you’re lucky and the market is in the toilet and everyone is declaring doom, then consider it a fire sale and you’ll scoop up a lot for the price. If markets are healthy, then you might see some dips after you buy, but you’ll be buying regularly so you’ll get benefits of both rises and falls in the market (and there will be both).

   What I do not recommend are “Target Funds.” You will recognize these because they will say, Fancy Fund 2066 or Fancy Fund 2077, which correlates to the year you’ll retire. (For some reason they don’t perform as well and have higher costs, plus they have a lot of “dogs” within the fund.)

   Keep your portfolio simple and if you want to research your options, type the individual fund choice into morningstar.com or print out the fact sheet/simple prospectus from your employer’s brokerage site. Compare each choice side by side. Choose good performers, as well as low costs (1% is high, which you usually can’t escape for international funds; .04% is more typical for U.S. index funds). If you have the option of index funds, that’s a great choice of broad coverage within a particular sector/segment with low cost. If you want to read more on index funds, I highly recommend, The Bogleheads Guide to Investing.

Do these exercises and it will be a critical first step in getting real about your money now, and your money in the future. And whatever you do, don’t ever touch that retirement money! As far as you’re concerned, it’s gone to space and won’t return until the year 2050, but it will have magically multiplied to be amounts far more than you could have imagined, and way more than you ever put in. (But that’s not to say you don’t satellite check in on an annual basis or so to make adjustments to their orbital course.)

Happy starting!

Xo, Trish Munroe