Getting Your Financial House in Order after Graduating from College
Congratulations, you’ve put in the hard work and graduated from college! So what’s next? Finding a place to live, starting a new a job or purchasing a new car? If it’s not already on your list, getting your financial house in order is a great place to start off in order to afford all of those items on your wish list. After all, if you fail to plan, you plan to fail.
Where do you start? Well, you will need to first see what you have to work with. Have you been saving money over the years? Do you already have income coming in? Have you established credit? How much debt are you carrying? A detailed budget will be a key to financial success going forward. Having a budget gives you a clear picture of what you owe, what you can save and what you can buy.
Budgeting can seem like an overwhelming task so be sure to give yourself plenty of time to sit down and go through all of your current income and debt. Start by making a list of all of your essential financial responsibilities. This list should include your rent, transportation costs, utilities, groceries, insurance and any other necessary expense. After you’ve created a realistic representation of your expenses, subtract it from your net (after-tax) income. This will help you determine how much of a monthly loan payment you can afford should you decide to borrow for a major purchase. This will allow you to avoid getting “in over your head” so you can make your monthly payments on time in order to build strong credit. You may also want to consider putting extra money toward your debt each month in order to pay off the loan early. This will help you save on interest over the term of the loan.
Although you’ve budgeted for a major purchase or entertainment, it’s important to first earmark a portion of your budget to establish a good emergency fund. That doesn’t mean that you shouldn’t account for fun activities. It just means that the sooner you start to build financial stability, the better off you will be in the long term and the more fun and financial security you will be able to enjoy later. Ideally your emergency fund should cover all of your monthly expenses for a minimum of 3-6 months. You never know when the unexpected will occur, and it’s vital to be prepared if it does. Establishing an emergency fund early on is the simplest way to accumulate wealth and security.
Look carefully at the benefits package offered at your new job. Many benefits packages now offer employer sponsored savings plans including 401K’s and Employee Stock Purchase Plans. You may be a long way off from retirement, but starting early allows your savings to grow or compound over time resulting in a greater return. A great benefit of these plans is that your employer will automatically deduct the amount that you wish to contribute from your paycheck so you won’t even miss it. In addition, this money is taken out pre-tax allowing you to lower your taxable income. Employers often match all or a portion of the amount that you contribute so keep that in mind when determining how much to contribute. You don’t want to miss out on the matching funds, which is essentially free money! If your employer doesn’t offer a 401K, it isn’t the end of the world. Your bank can help you open an IRA (Individual Retirement Account) so you can begin building wealth. There are various types of IRAs available to fit your individual needs. It’s also a good idea to talk to your tax advisor about potential tax-deferred or tax-free growth with IRAs.
This article is provided for informational purposes only; it is not intended to provide financial or legal advice.