7 Financial Planning Suggestions For Individuals Recently Graduated From College

A few recent college grads plan to work in rocket science after studying physics. Some want to be physicians and know every bone in the body, while some people are walking historical encyclopedias. However, how many of them are actually able to balance a checkbook?

Fifty-seven percent of Americans between the ages of eighteen and twenty-four still reside with one or both of their parents, per the Pew Research Center. The $1.77 trillion national student loan debt and the labor market that traps graduates in minimum-wage jobs and internships for years after graduation may be to blame for this. That indicates that a large number of recent college graduates have never learned to live on their own, let alone paid their own rent, set a budget, or balanced a checkbook.

This depressing figure has the upside that it doesn’t take much effort to understand the fundamentals of personal finance management.

The following seven personal finance techniques will help you start your post-college life off right:

1. Start by learning how to make and stick to a budget

This is the first technique we’ve highlighted because it will serve as the cornerstone for all other personal financial management actions you do. You won’t be able to use any other personal finance tactics until you have some understanding of and control over how much money you’re making and spending. Actually, budgeting is a rather straightforward notion; the hard part is usually getting it done.

Finding out your monthly income and expenses in their entirety is the first step. Subtract the latter from the former to see if your current out-of-pocket expenses are greater than your income. If your expenditure is down, hopefully, you can start planning how you will invest and/or save the extra cash (see the following two strategies below). If your out-of-pocket expenses are greater than your income, it’s important to examine your spending carefully and identify any areas where you may make some small, or perhaps large, savings. You may also think about taking on a second part-time job to increase the revenue side of the ledger.

2. Set aside money as your first priority

Since their income is likely to be relatively low, recent college graduates frequently prioritize other things over saving when they start their professional careers. On the other hand, prioritizing saving will help create lifelong sound financial habits. No matter how little money you make, you can most likely afford to save a little. At this point in your life, saving discipline is more essential than the amount.

One tactic is to set aside a certain amount of money each month; this way, as your salary rises, your savings will also. First, aim to save three to six months’ worth of living costs in a money market or bank account that is covered by the FDIC. This can act as a “rainy day” savings account that you can access in the event of an unexpected need, such as a costly auto repair, a medical bill, or a prolonged period of joblessness.

3. Get a fundamental understanding of investing

Understanding that conserving money and investing money are not the same thing is crucial. Once you have sufficient funds in your emergency savings account, you might consider allocating a portion of your extra funds to bonds, stocks, or other financial instruments. By investing, you can potentially earn a better return than money market and savings accounts, but you also run the risk of losing some or all of your money. Generally speaking, the larger the possible return, the riskier your investments may be. When investing for long-term financial objectives, such as retirement, it may make sense to take on a little bit more risk.

4. Begin considering your retirement

Although it may seem like the last thing you should be thinking about, the truth is that you have more time to take advantage of tax breaks and compound interest if you start saving for retirement sooner rather than later. Time is actually the retirement saver’s greatest ally.

Consider the impact that starting to save for retirement early can have: When John was twenty-five years old, he began making weekly contributions of $90 to the 401(k) plan of his employer. He will have a $1 million retirement fund when he gets 65 if he keeps doing this for 40 years and makes a 7% annual return. However, Jane waited until she was 35 years old to begin making contributions to her employer’s 401(k). Because she waited 10 more years to start, she will need to contribute more than twice as much money ($190) to her 401(k) each week in order to accrue $1 million by the time she is 65. Investing for retirement is by definition “saving,” so if you fund an IRA or 401(k), you’ll be accomplishing two goals at once.

5. Pay off your debt and keep it that way

The biggest threat to your long-term financial security may be excessive debt. Therefore, another top financial priority after graduating from college should be paying off whatever debt you may have. Start with your student loans, if you have any. Establish a target to pay these off by a specific future date, such as five years from now. Pay off any credit card debt you accrued during your time in college as soon as you can. Next, resolve to avoid debt, particularly credit card debt with high interest rates. Using cash or a debit card to make all of your purchases is one way to accomplish this.

6. Establish a solid credit record

In the future, your credit score will play a major role in determining how well or poorly you do financially. It will have an impact on everything, including the interest rate you pay on these and other loans as well as your ability to get approved for a mortgage, auto loan, or even an apartment lease. Before making an employment offer to a candidate, some companies even run credit checks.

Paying your bills on time is the greatest method to maintain a good credit history and a high credit score. On MoneyTips.com, you can quickly and easily check your credit score and view your credit report for free. Take a close look at your credit report. If you find any inaccuracies or irregularities, get in touch with TransUnion, Experian, or Equifax, the relevant credit reporting agency, right away. Inaccuracies on your credit report could indicate identity theft.

7. Instill the humanity and discipline of giving

Adopt a same strategy for donating as you do for saving: make a commitment to donate a portion of your earnings. The location of the donation is irrelevant; it can be made to a church or other house of worship or to charities that you believe in. You’ll take on a more charitable mindset in other aspects of your life if you develop the discipline of donating money early in life.

The most exciting period of your life may come in the years immediately following college graduation. You will lay the groundwork for a lifelong sound financial foundation at this stage by learning and putting these fundamental personal finance techniques into practice.