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 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.
If you want to take your investing a step further into individual stocks, start by looking at large, successful companies with understandable business models. For example, McDonald's (NYSE:MCD) dominates the fast-food industry, serving 69 million people every day. Mickey D's has had a tough few quarters as rising food costs pinched profits, and consumers have become even more value-minded. But the company still expects to grow sales faster than the industry this year by improving its menu, and by spending $3.2 billion adding locations and renovating existing restaurants.
Or take a look at Coca-Cola (NYSE:KO). The beverage king doles out 1.8 billion drinks per day. Its entrenched position in so many customers' lives kept Coke's gross profits from falling much during the recession, and they've leapt to almost $30 billion over the past year. Still, Coca-Cola has room to expand, particularly overseas. Its flagship soda brand notched better than 30% volume growth in Thailand and India last quarter. And newer brands, such as Gold Peak and Honest Tea, helped the company boost its non-soda beverage volume by 6% globally.
Like McDonald's, Coca-Cola pays a hefty dividend, yielding about 3%. By collecting and reinvesting solid dividend payments like that, you can ensure that your money keeps working right along with you.
Fool contributor Demitrios Kalogeropoulos owns shares of McDonald's and Berkshire Hathaway. The Motley Fool recommends Berkshire Hathaway, Coca-Cola, and McDonald's and owns shares of Berkshire Hathaway and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.