If you're a new graduate or approaching graduation, you may already be hearing this drumbeat of building financial responsibility. New job, student loans, bills, hooray! One of the best things you can do right now is to make a financial plan. Even if you don't consider yourself a financial expert, there are a few very simple things you can do immediately to get you started on the right foot.
Here is a short list of some of the best financial planning tips for new college graduates:
Create a budget
You can create a budget in an Excel spreadsheet or even on a regular piece of paper. Google Docs has several free apps, including an online spreadsheet that you can also use. Write down all possible sources of income and expenses. Expenses can include rent, student loans, car payments, food, gas, savings, and any other recurring items that will result in a cash outflow. Then list all of your expected sources of monthly income, including wages, wages, and any other source of income you can reasonably expect. Add up your total income and then subtract your total expenses. Track your monthly expenses on an ongoing basis to identify areas where you are spending too much money.
Look at more than a paycheck
According to the National Association of Colleges and Employers (NACE), the average starting salary in the class of 2022 ranged from about $51,000 for liberal arts majors to nearly $76,000 for computer science majors.
You want your job to cover the cost of living in your area. But more money doesn't always mean more job satisfaction. Be sure to consider other factors such as medical and retirement benefits, workplace culture, and career potential.
In some cases, a low-paying start-up job in a field you want is likely to be more profitable in the long run than a higher-paying job in a field you don't want to stay in. Accepting a job in an unrelated field Just because you get paid more, it can either delay your career advancement, or worse, trap you in a field of work that you don't like.
Consider moving in with your parents
As of October 2020, 43% of young people (aged 18 to 29) lived with one or both parents, compared to 49% in June of that year. While the surge was largely a result of the coronavirus pandemic, about half of new graduates tend to return home after graduation, often due to massive student loan debt.
When you're just starting out and need to build up your savings, moving in with your parents can be a smart money move. This will keep your living expenses down while you get back on your feet. It will also help you determine what your actual living expenses will be so you don't move to a place that is more expensive than you can afford.
However, after you've been working for a few months, find a place where you can live alone or with roommates. It's hard to go home when you were independent in college, and you'll grow faster and learn more when you're alone, even if it may not be easy at first.
Many college graduates return to their parents' home to save money, but some lack the discipline needed to save money and end up spending the money they earn on things like entertainment, electronic gadgets, and social life. Moving home will only work for you if you make sure you don't fall into that spending trap.
Don't buy a new car
You might be tired of driving a jalopy in college or not having a car at all, but buying a brand new car is an expensive mistake that can keep you on a tight budget for years to come. Instead, look for a used car that you can afford. If a used car dealership is out of your budget, you can ask around if a family friend or neighbor sells a used car, which may be a cheaper route.
You may also want to consider moving to an area with good transport links or a pedestrian zone so you don't have to buy a car at all.
In addition to maintaining a budget, consider adopting an emergency fund. This stowed-away amount of money will be your safety net in case of unexpected financial trouble, such as a car accident or losing your job.
Ideally, you want to have three to six months’ worth of expenses saved up. But don’t let that number intimidate you. Start small while you build your fund, for example, by setting aside $50 per month. An extra $500 or $1,000 will help out a lot when you have surprise expenses.
While you were in school, you were probably covered by your parents’ health insurance or had a policy through your college. Now that you’re on your own, though, you will need to be responsible for your own coverage.
If you’re young and healthy, health insurance can seem like an unnecessary expense. But medical bills can be financially devastating if you have to pay them out of pocket. In the United States, 50% of adults had medical debt, of whom 23% owed more than $5,000 and 11% owed more than $10,000 as of September 2021.
Your job may come with health benefits. If not, you can purchase it through your state’s health insurance marketplace. If you don’t yet have an income, you may be eligible for Medicaid. No matter what type of coverage you have, use it when you need to, especially preventative care such as annual appointments, screenings, and vaccines. These are available at no extra cost to you.
Half of Americans have less than $250 left over each month after accounting for their necessary expenses and regular spending, according to a 2021 survey from The Balance, and 12% have nothing at all.
When you’re creating your budget, be sure to incorporate savings into your expenses equation. This means building up your emergency fund, saving up for larger future purchases, and yes, contributing to a retirement account.
If you’re lucky enough to have access to an employer retirement plan like a 401(k), use it. If they offer some sort of contribution match, try to maximize it. If not, open an individual retirement account (IRA) and begin making contributions there. By starting to save for retirement in your 20s, you can greatly impact your future financial security.
If you’re leaving college with debt of some kind, such as student loans or credit card debt, make a plan to pay it off.
For student loans, you can get on an income-based repayment plan so your monthly payment isn’t more than you can afford. If you don’t currently have a job, you can request that your loan be put in forbearance, so you don’t have to make payments until you have an income.
If you have credit card debt, you’ll want to focus on paying that off before anything else. Otherwise, the interest you pay on this kind of debt can end up being worth more than the original purchases you made. Consider using the avalanche or snowball methods to pay off one debt at a time until you are debt-free.
How do you open a brokerage account? Is it better to pay off a mortgage early or invest the extra money? How do you improve your credit score?
Taking time to learn about personal finance won’t just help you become financially independent. It will help you stay that way by allowing you to avoid costly mistakes. It will also help you build wealth so you can live more comfortably and retire when you want,
The best way to learn about personal finance basics is to find a financial expert whose methods resonate with you and study their advice. You can also talk with a financial advisor (you might be able to find one for free through your work or bank) to create a financial plan specific to your goals. Decide which way you learn the best, and dive into content that can help you build a financially secure future
Reviewed by Poko News 24
on
August 31, 2022
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