3 Money Tips for a New Graduate
Spring is my favorite time of the year. We become more active with outside activities, start to travel and of course, our expenditures increase. The month of May also means graduations and new beginnings for many young adults. I want to share with you the financial advice I wish I had received when I was in my 20s, but I didn’t. I had to learn the hard way! I became a certified financial planner™. You don’t have to!
Tip #1- Live cheaply & learn to budget
Once you bring home the bacon, you’ll need to figure out how to slice it.
Live cheaply and learn how to budget. Without some sort plan for how you will allocate your earnings and how you will keep track of your expenses, it’s going to be impossible for you to succeed.
During my years of practice as a financial planner, I’ve observed that many people hate budgeting, so I created my own system.
First, you need to explore and understand where your money is coming from. Now, let’s be clear, this is not budgeting. You’re not counting every penny; you are building an awareness of the ebb and flow of your money.
Let’s start with this simple exercise:
Step #1
-Identify Income Sources
How much you make per month (weekly/bi-weekly/monthly)?
Add up all your income:__________________
Step #2
-Look at your expenses
Where do you spend your money? Track your expenses for 2-3 months. I like using mint.com. It does the job for me. It aggregates all transactions from credit cards and checking accounts and creates a real overview of my expenses.
Step #3
How much do you need to live on each month?________
Is it $3K, $5K or $10K? You need to know this number because it is very important for you to understand the kind of lifestyle you have, versus the kind of income that you generate. Are there adjustments needed or are you right on target?
Step #4:
What is your bottom line?_________
Subtract total expenses from your income. Do you have money left over?
Evaluate where you stand. Knowing where you stand is a first BIG step in making your budget your friend. Do you spend more than you make? Or are you living within (or beneath) your means?
Tip #2 Break up with debts
Debt is the reality of most young people today. It’s unreal how many graduates come out of college with huge debts and no real idea if they will get jobs right away.
Your number one focus should be to get rid of college debt, or any other debt as fast as possible. Your future’s so bright, that you don’t want to be bogged down by still paying your debts off in your 30s or 40s.
Do the math:
1. Figure out how much debt you have, and how fast can you pay it off.
2. By now you have a budget in place, which will allows you to understand what your basic needs are. Most of your discretionary money should be spent paying down your debt. If you have credit card debt, you should focus on paying higher interest rate balance first
3. Adding additional dollars beyond what you pay monthly (and by the way, remember that a lot of student loan providers give you 0.25% discount on your interest rate, if you set up auto payments) to your debt principal will help you in two ways:
a. Save money on interest paid over time
b. Speed up the debt payoff
4. You also might be interested in exploring jobs that help you pay off your loans, for example, Public Service loan forgiveness (if you have public service job or work infederal government, or serve in the military or Peace Corps.)
Tip #3 Start a Curveball account
And last, but not least, let’s talk about an emergency fund or what I like to call a “Curveball account.” I promise you, if you can master this step early on in your life, you will never have to worry about situations where you have to borrow for emergencies or opportunities. There is a huge power in having a stash of cash that you can tap into any time!
I know it might hard right now to even wrap your mind around the idea of being able to set aside emergency savings, since you are just starting to earn more income. But what choice do you have? If some unexpected event happens and you do not have a cushion, you are putting yourself further in the hole.
Let’s take baby steps. Begin by opening a savings account, earmark it as a “Rainy Day” fund or “Curveball account.”
I suggest an online, high-yield savings account that is connected to your checking account so that you can transfer funds back and forth.
Begin saving of at least $50 or $100 (or if you can do more, Awesome!!) from each paycheck. You will see that in time you will have a small stash of cash accumulated.
Your target should be to grow the balance in your Curveball account to the equivalent of 3 to 6 months of living expenses,
I promise that you will feel a lot more freedom once you start growing your Curveball fund.
These are very basic skills I’d love you to learn now. The real power lies in mastering them, because today is just the beginning of your new life as an adult. Knowing how to be Financially Smart is the best life skill you can learn early on!
I challenge you to Make Smart Financial Decisions!
