WHEN ZANEILIA A. HARRIS landed her first job out of college as auditor with the federal government in 1993, she earned an annual salary of $25,000--"more money than some of my family members had ever seen." So when relatives asked to borrow money, she felt obligated to help out. "Others had helped me, so I felt I had to give back," she says. She even cosigned on a used car loan for a family member, although the former accounting major and BLACK ENTERPRISE reader says she knew better. Inspired as a student by an article she'd read in BE, she wanted to learn about finance so she could better understand how to manage money and eventually pursue a career in finance. But knowing better and doing better are two different things. When the loan went into default, Harris faced a dilemma: either pay the nearly $5,000 bill or tarnish her credit report. For roughly two years she paid nearly $200 a month to fulfill her relative's obligation. "When you're just getting out of college, that's a lot of money," she says.
Mistake 1: Not creating an emergency fund
I know you've read in the pages of this magazine about the importance of an emergency fund to handle unexpected expenses such as car repairs or a furnace breakdown. But this is one smart move that can't be overemphasized. Without this safety net, you'll likely wind up paying for emergencies with a high-interest credit card. In fact, 66% of those with credit card debt report having difficulty saving, according to a survey by credit rating agency Experian and America Saves, a national campaign managed by the nonprofit Consumer Federation of America. Setting clear financial goals is the first step toward saving for a rainy day, says Ken McDonnell, the director of the American Savings Education Council, which works to make saving a priority for Americans. Here's how to increase your odds of success:
Strive to save an amount equal to six or more months' of expenses. While it may take you a couple of years to get there, six months' worth of living expenses can provide a cushion for unplanned events such as major home repairs or short-term unemployment, McDonnell says. Have a portion of your paycheck--10% or more--antomatically transferred to your rainy day fund.
Have a specific amount in mind. Calculate to the penny six months' of living expenses. "If you don't know how much you need to save, how are you saving?" says McDonnell. Once you've achieved that goal, focus on a different...