9 WAYS COLLEGE GRADS CAN START LIFE ON THE RIGHT FINANCIAL FOOT
Some 1.8 million students in the U.S. will graduate with a bachelor’s degree in 2017.
And most, if not all, will have to start — as Millennials are fond of saying — adulting. They will have to earn money, pay back student loans, pay bills, and save for a rainy day, a car, a home and retirement.
Here’s how graduates should go about creating a sound financial plan, according to experts.
1 CREATE A BUDGET
Keep track of your expected and actual income and expenses using software programs such as Mint or You Need a Budget. Of note, making a budget is not a once-and-done task. Instead, you adjust as needed.
“This is ongoing and is not a test you study for to pass and then forget,” said Autumn Campbell, a financial planning resident at Upperline Financial Planning. “Budgets are malleable and change as your life circumstances change. Having a budget keeps you honest with yourself and in tune with your expenses.”
A budget can also help you live within your means, said Jason McGarraugh, a certified financial planner with Neal Financial Group. “You need to know what you make and track what you spend,” he said.
2 HAVE AN EMERGENCY FUND
Save some of your income for an emergency fund (three to six months of living expenses is a good target). “This will help you weather a car breakdown, an impromptu spring break trip or needing to fly home to see a loved one,” Campbell said. “This way you will be expecting the unexpected, financially at least, and will be far less likely to pay interest on unplanned expenses.”
Of note, Ally Bank pays 1% on balances in savings accounts, which Campbell said “is as good as it gets for completely liquid assets these days.”
3 SAVE AND INVEST
Try to save at least 10% of your income in a retirement account, a traditional or Roth 401(k), a traditional or Roth IRA, or a similar account. At a minimum, save enough to get your employer’s full match on your 401(k) plan.
“A 100% return on money is unlikely to happen anywhere in your life,” Campbell said.
Campbell said opening a Roth IRA is a “great choice for most earners at 25 years old.” She recommends investing in low-cost index funds such as the Vanguard Total Stock Market index fund and the Vanguard Total Bond Market index fund. “Those two funds will expose you to the whole U.S. market and allow you to take part in the benefits of investing,” Campbell said. Other options: target-date or target-risk funds.
Also, take advantage of your employee benefits if you have them, McGarraugh said. “If you do not want to read the employee handbook, hire someone, such as a certified financial planner, to do it for you.”
4 REPAY YOUR STUDENT LOANS
Graduates who borrowed money to pay for college will have to evaluate how best to pay back their federal and/or private loans. If you haven’t done so already, visit the Education Department’s website at https://studentaid.ed .gov/sa/repay-loans, to determine the right repayment plan, how to make payments and what you can do if you can’t afford your payments.
5 HIRE A FINANCIAL PLANNER/MENTOR
You might not think you have enough income or assets, but now’s a good time to meet with a financial planner. A planner, among other things, can help you decide whether to consolidate your student loans, whether to save for retirement using a Roth 401(k) or traditional 401(k), how to invest your money, how much life insurance to buy and the like.
“Ideally, if you want an A+ in financial literacy from the start,” Campbell said, “I recommend that graduates find a way to get or hire a mentor who is a fiduciary to teach them about budgeting, retirement planning, risk management/insurance and other aspects of financial literacy.”
Note to parents and grandparents: A great graduation gift would be a one- or two-hour consultation with a qualified and competent financial planner. You can search for a financial planner at www.letsmakeaplan.org, findanadvisor.napfa.org and at www.xyplanningnetwork.com.
6 SPEND FOR TODAY OR SAVE FOR TOMORROW?
“You don’t have to choose between living life today and preparing for life tomorrow,” said Michael Branham, a certified financial planner with The Planning Center. “In reality, you should pay attention to both.”
The key, he said, is to find a balance between your current consumption decisions and investing toward your long-term financial security.
“Your monthly or annual cash flow is king, and developing both short-term and long-term strategies within that balance will develop money habits that can lead to long-term success in life,” Branham said.
7 TREAT YOUR REPUTATION AND PROFESSIONALISM AS YOUR MOST VALUABLE ASSET
“We all like to have fun, and we’ve all made mistakes in our youth,” Branham said. “But today’s graduates often have their lives captured through social media and other online forums.”
His advice: Pay attention to how you portray yourself to the world because someone is always watching. The consequences of online mistakes could affect your ability to earn a living in the future.
8 LIFE IS FULL OF TRANSITIONS; LEARN HOW TO MANAGE THEM
According to Branham, life transitions come in different forms and circumstances; some will be good, others will be a challenge.
“Be able to roll with the punches, and have a place — family, friends, advisers — where you can go to get advice on how to navigate your possible decisions when life happens,” he said.
9 KEEP LOMBARDI TIME
According to McGarraugh, five minutes early is on time, on time is late, and late is unacceptable.
“If you live by this standard in your personal and professional life, opportunities for financial independence will surface,” he said.