Financial planning as a first-year employee: things to consider

Congratulations on your new job! Surviving the cut throat job market and landing a job you are happy with is certainly a dream come true. However, the first year of a job comes with its own set of challenges, including but not limited to learning curves, self-development, and of course, financial stress. Establishing a solid financial plan early in your career will not only cultivate responsible habits in you but also set you for better financial decisions in the future. As such, here are some key factors to consider when determining a financial plan during your first year on the job.

Before you start

First steps first. Before you attempt to work on the financial plan, break down your budget. What are your fixed expenses? What are things you can cut some spending on? Your fixed expenses include rent, utilities, and loan payments, while other expenses, usually variable ones, encompass groceries, entertainment, and dining out. You can use budgeting apps to monitor your spending patterns and identify areas where you can cut back. 

Before sorting out the initial plan, make sure to set aside a certain amount of money for your emergency fund. Consider this fund as your financial safety net; your absolute last resort in the case of unexpected expenses such as medical emergencies, accidents, or car repairs. This money should not be touched for normal use, and should only be accessed when absolutely needed and your regular budget isn't covering an unplanned expenditure. 

Things to consider

Now that you have broken down your budget and set aside the emergency funds, time to get down to the actual planning. Preferably, you should compile the financial plan in the form of a written list or a spreadsheet - whichever format is more comfortable for you. The first thing you should do is jot down your monthly take-home pay. This is the amount you receive after taxes and other deductions. This is also the money that you will be working with for the rest of your financial plan.

The next step in your plan should be prioritising your debts, with the highest interest rates first. Add in any possible opportunities you can utilise to refinance your loans or negotiate more favourable terms with creditors. Next, add in any other deductions you may have, such as tax credits. You can get in touch with an experienced professional regarding this if you aren't sure of how much tax you may be subjected to.

As you are setting your financial plan, you should look into any health insurance plan you are liable to, which could also be tied to your line of work or the organisation you are working for. There may be deductibles, copayments, and coverage limits within your insurance that you may not be aware of, so take your time familiarising yourself with all the details.    

Set SMART goals

Many prefer to break down their financial plan into SMART goals, which are defined as 'Specific, Measurable, Achievable, Relevant, and Time-bound' objectives, with each playing a crucial role in guiding your financial efforts. Here are some examples.

Specific: Instead of a vague objective like 'save money', a specific goal would be 'save Tk. 5,000 per month for six months to build an emergency fund'. A well-defined and clear goal like this will keep you focused in the long run.

Measurable: Goals need to be quantifiable so that progress can be tracked. Using the example above, the measurable aspect is the Tk. 5,000 per month savings. Regularly monitoring your progress against measurable criteria helps you stay on track and motivated.

Achievable: An achievable goal considers your current financial situation, capabilities, and resources. For example, if saving Tk. 5,000 per month is too much for your first-year salary, consider lowering that amount in tighter months. Be sure to not get frustrated due to an overly ambitious goal.

Relevant: A relevant goal aligns with your broader objectives and values. Following the above example, the 'saving Tk. A 5,000 per month' goal has to lead to something productive in the end, i.e. even if you don't use it as an emergency fund, you could use it as a down payment on a car or phone you may want to improve your personal and/or professional life.

Time-bound: The goal of saving Tk. 5,000 per month for six months provides a clear time-bound framework that will distract you from unnecessary spending. Having a deadline also encourages consistent effort and allows for regular evaluation of progress. 

Breaking down large goals into smaller milestones enhances the achievability of the overarching objective. Continuing with the example, if the overarching goal is to save Tk. 30,000 in six months, breaking it down into monthly targets of Tk. 5,000 makes it more digestible and achievable. As such, determining your financial plan will be much easier even with a limited budget to work with.