Step 1 – Take care of regular expenses and debts
Make sure your cash flow can pay for your lifestyle. First and foremost, that means paying for necessities like food, clothing, shelter, and transportation. Limit extraneous expenses until you are into a steady routine with work and with managing your paycheck.
In addition, make sure you can continue to pay off any debts that remain on your personal books. Car loans, student loans and credit card debts must be paid on time. If it is possible, pay more than the minimum monthly payment required on high-interest credit card debts in order to reduce the principal balance each month.
Step 2 - Manage your spending
When paychecks start rolling after a period without them, it is easy to feel “rich” again and quickly turn on the spending spigot. After all, depending on the circumstances of your time away from work, you may have significant pent-up demand for items you’ve delayed purchasing.
Find out what retirement savings options are available through your employer. If you can contribute to a plan (such as a 401(k) or 403(b) plan), you should make that arrangement as soon as you can. The closer you are to retirement, the more you should be saving, as your time to let wealth accumulate in your investment accounts is limited.
April M. Oliver, CFP® CERTIFIED FINANCIAL PLANNER™ practitioner
Advisor is licensed/registered to do business with U.S. residents only in the states of CA, CO, FL, IA, MD, MI, MO, NC, NY, OR, PA, SC, TN, TX, VA. Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC. Some products and services may not be available in all jurisdictions or to all clients.
© 2011 Ameriprise Financial, Inc. All rights
feeling is understandable, but it is important to spend money responsibly. You already know better than most the challenges created when cash flow from an employer or your own business stops. This is not the time to begin careless spending habits, but instead to prudently manage your income.
Step 3 – Pay for your future security
Take advantage of your improved cash flow position to save for your future. The importance of saving for retirement cannot be overemphasized, regardless of your economic position. Today, you have the ability to work and generate income. There will come a time in life when this will no longer be possible.
If offered, be sure to capitalize on the opportunity to take advantage of an employer match of all or part of the amount you put into your plan. Many employers will match your contributions by up to 3 percent of your salary – giving you a built-in return on your investment. This is, in a sense, “free” money that shouldn’t be passed up.
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If you’ve been away from work for a while, you should be particularly inspired to resume a serious retirement savings regimen. You have a keen understanding of the financial challenges involved when regular paychecks don’t arrive. This is similar to what most Americans face in retirement. Their well-being is dependent, in large part, on the foresight they had to save money for their future financial security.
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