Congratulations, graduate! Now start a money plan

Jill onmoney

Soon after doffing their caps and gowns, college graduates should develop their first financial plans. Here’s howto start:

Create a cash flow: This is not a budget but rather a process that will allowyou to track what’s coming in and going out. This may sound annoying, but think of it as a way to find the money to fund your various financial priorities. Most banks offer apps, or you can try Mint, Digit or Youneed a Budget.

Build a balance sheet: This will help you understand what you own (assets, on the left) and what you owe (liabilities, on the right). Assets minus liabilities equal your networth, which for many 21-year-olds starts with aminus sign. Don’tworry, time is on your side.

Check your credit report: Get into this habit by going to Annualcreditreport.com to review your credit report. If you find a mistake, notify the credit reporting agency.

Pay down debt: Take a look at the right side of that balance sheet. Your first priority is to pay off the highest interest consumer-related loans (credit card and autos) and then systematicallywork your way down to the lower interest ones.

If you are among the nearly 70 percent of 2017 graduates with student debt, understand exactly what you owe. Write down each loan, its interest rate and the payment amount, and note whether the loan is a federal or private one.

If you are headed to graduate school, youmay be able to postpone or defer your education loan payments. But be careful, because examiners at the Consumer Financial Protection Bureau have found that some student loan servicers act “on incorrect information about whether the borrowerwas enrolled in school.”

Establish an emergency reserve fund of six to 12 months’ worth of expenses:

This is the account where you maywant to accumulate money for a car, a security deposit for an apartment rental or any other near-term goal. Because this fund is meant to be safe, fight the urge to put it in a risky asset, like a stock mutual fund. Instead, stick to a savings, checking or money market account or a short-term certificate of deposit.

Maximize retirement contributions:

Yes, it’s decades away, but ask anyone older than 40 about financial regrets and you will hear, “I should have started to save for retirement earlier!”

While very few recent graduates will earn enough money to put away the maximumof $18,000 into an employer-sponsored plan this year, try to contribute to your employer’smatch level (usually 5 to 6 percent). If you don’t have an employer plan available or areworking freelance, fund a Roth IRA with as much money as possible, up to the $5,500 maximum, or start small with the government’smyra savings plan.

If you contribute $100 per month for the next 50 years and you earn a compounded interest rate of 5 percent, when you reach age 70, there should be just over $250,000. If you start 20 years later at age 40, by the time you are 70, therewould be almost $80,000. You can playwith various calculators from the Securities and Exchange Commission that can project how quickly your money can grow.

Contact Jill Schlesinger, senior business analyst for CBSNEWS, at askjill@jillonmoney.com.