So you managed to get a job in this tough economy. Congratulations. It couldn't have been easy.
According to government statistics, the U.S. has added an average of 172,000 jobs per month for the last year. That's a big improvement from the recession lows, but it's nowhere near the 300,000 job gains that we saw during many months of the '90s boom years.
Now that you've made it into today's slowly growing workforce, though, it's time to put your money to work, too. Here are four financial tips that will help you make the most out of the new stream of paychecks headed your way.
1. Pay off credit cards Priority No. 1 is to attack those card balances with a vengeance. This is textbook financial advice for a good reason: Credit cards come with some of the highest interest rates around. Banks are handing out car loans at 2.5% these days, and mortgages are still going for less than 5%. But credit cards average a whopping 15% annual charge. Pay off those balances now, and nab the easiest guaranteed 15% return you'll ever see.
2. Build a cash cushion The next step is to bulk up your emergency reserves. What Berkshire Hathaway Inc. (NYSE:BRK.A) CEO and famed investor Warren Buffett calls "redundant liquidity," we non-billionaires refer to as a "rainy day fund."
This cash cushion is the stash of at least three to six months of living expenses that will be ready in case of an unexpected loss of income. And having a solid reserve will help you deal with those expensive surprises that can pop up -- without taking on costly credit card debt.
3. Sign up for automatic retirement contributions Many employers offer 401(k) retirement plans with a matching bonus, meaning that they will pay into your account a certain percentage of what you elect to contribute. That's called free money, and you should take advantage of it by contributing at least up to the maximum matching percentage.
However, even if your company doesn't offer a matching bonus, be sure to sign up for automatic retirement contributions anyway. You'll get used to living below your means that way, and you'll give your money the longest amount of time possible to grow before retirement.
4. Invest in the stock market Yes, the stock market isn't everyone's favorite place right now. While retail investors have tiptoed back in lately, many -- having lived through the 2008 financial crisis and the 2000 tech bubble pop -- have done so only reluctantly. Still, even with huge dips like those the stock market offers by far the best potential for long-term returns. Consider adding to your retirement savings first by purchasing a diversified whole market fund, like one of these.