6 Financial Planning Tips for New College Grads
College grads are often eager to hit the ground running and start their lives of financial independence from their parents. This includes getting a new car, moving out on their own, and simple items we take for granted like obtaining their own insurance and cell phone plans. There is also a lack of financial maturity for the newly minted graduates. Paying a little extra attention to their finances will allow them to avoid costly mistakes that will set them back for a number of years.
Start Saving Immediately
You should be saving around 20% of your paycheck before you pay yourself or your bills. Saving this much helps you escape the cycle of living paycheck to paycheck. A good goal to aim for is at least $500 for emergency savings and six months of your living expenses. Once you have those squared away, you can start looking at investments for your savings.
Always Track Your Money
The number one mistake that recent grads make is not keeping track of their money. There are so many personal finance apps on iOS and Android that make tracking money seamless. Search out personal finance apps by user rating and downloads, and eventually you will find one you like. Any app worth its weight in gold will have a net worth tracker, expenditures by category, and an overall account aggregator so you can capture everything coming in and going out.
This seems self-explanatory, yet this becomes the pinnacle issue of why so many find themselves in debt. Cutting expenses is not a fad, it is a lifestyle change. Anything less than 100% commitment always leads back to the same result, loads of consumer debt. Expensive homes, cars, and eating out tend to be the common culprits. However, sites like Amazon, and warehouse clubs like Costco, are encouraging us to spend more without even knowing it.
Pay Off Student Loans
You should focus on paying down your student debt as quickly as possible. If you've found yourself unable to make payments on your student loans, or are looking to reduce interest rates, then it may be time to refinance. When you refinance student loans, you're getting a more favorable interest rate that will immediately free up more cash each month. There's nothing wrong with checking rates to see if refinancing makes sense to you, especially if your income level hasn’t yet reached the height of its potential.
Once you've taken care of saving, your bills, and monthly costs — don't forget to pay yourself. Most people get off track financially because they tighten the purse strings too much. Give yourself an allowance of 'fun money' that has no guilt attached. You can increase this amount as you work to pay off any debt you owe. Giving yourself a 5% increase every time you reach a payment milestone is a great way to stay motivated.
Go Beyond 401K Employee Match
Working for a company with a 401k with employee matching is excellent, but don't stop there. Contribute as much as you can to your 401k to help it grow. These contributions are deducted from taxable income, so you only pay tax when the money is taken out. A Roth 401k is the opposite, where the money is taxed at your current rate, and the gains grow tax-free.
This article does not necessarily reflect the opinions of the editors or management of EconoTimes.