Planning Tips for College Graduates
Did you recently pack up your dorm room or apartment at college for the last time? Are you starting to build out your professional wardrobe? Are you looking for a place of your own for the first time? If you’re a recent graduate, congratulations! This post is for you and offers some advice on how to begin your newfound independence with a good financial foundation.
Good financial habits now will aid you for the rest of your life. Here are some guidelines to consider as you start to manage monthly cash flow.
Pay yourself first.
Each month, set aside 10% for your future self before spending anything. Always. You want to get to work on filling two buckets.
The first bucket is for emergency savings that would cover three to six months of living expenses in case you lose your income.
The second larger bucket is for retirement. As soon as you are eligible for your employer’s retirement plan, you should save as much as possible in this account. Take the time to understand the matching program so that you don’t leave money on the table. An IRA is another great savings tool if your employer doesn’t have a retirement plan.
This is a discipline you never want to abandon. Any time your income increases, make sure the 10% you pay yourself increases too.
Be smart about rent.
Many apartment complexes are in an arms race with each other for renters. The chances are good that you can find a place with a good gym, a pool, and maybe even an on-call barista. They may tell you the coffee is free. But rest assured that cost is baked into your rent. In order to keep your financial house in order, you should aspire to pay less than 25% of your gross (before taxes and deductions) monthly income in rent.
Track spending and create a budget.
Tools like Mint and Simplifi are good for helping you understand where you spend your money and how to get your spending and savings in sync. You can create a budget without these tools, but their convenience is compelling. It can be an eye-opening process to come to terms with your latte habit or recurring online subscriptions. Speaking of such expenses, Simplifi is a paid service. So be sure it’s something you will use, or if it helps you get off the ground, be sure to cancel it.
Charge!
You really can’t survive without a credit card these days. With the ability to link your card to your phone or watch, paying for stuff has never been easier. That can be good and bad. Here are some thoughts on credit cards for younger consumers.
Pay the balance off every month. Credit card debt can spiral out of control quickly. Don’t let this happen to you.
Annual fees are a pain. Shop around. There are lots of good cards with no annual fees.
Sometimes getting a card with your bank comes with perks. Again, shop around.
Find one card you like and stick with it. Each card you open creates another file in your credit report. Rarely do you need to jump on those in-store offers they push at checkout.
Ask for help.
In many ways, you may feel well-prepared for this stage of life. Unfortunately, very few people in our society of any age have a firm grip on personal finance. So don’t feel alone. Ask your parents or a mentor for help. Of course, that’s why I’m here too. If you want to discuss any of these topics, or if I failed to mention something that’s on your mind, I hope you’ll reach out.
