Dear New Graduates, First, congratulations on your achievements so far. This is an exciting time -- and maybe even a little intimidating -- as you head into the next phase of your life. A new job can be challenging, a new apartment fun, but let's be honest, new financial responsibilities can be a bit scary. Here's where I can help.
Spend mindfully. If this were the only thing you did on the list, you'd still be ahead of the game. Spending mindfully is the foundation of good money decisions, whatever your age or financial situation. Quite simply, it means knowing where your money is going -- and where you want it to go. It means setting realistic goals and working toward them. And it means being conscious of your finances, whether during lean times when you have to cut back or flush times when you can afford to treat yourself. Ultimately, it means you control your money rather than having it control you.
Live within your means. Having a steady paycheck can feel pretty freeing--as long as you realize it has its limits. To make sure you have enough to live on at present and still keep an eye on the future, look at your needs vs. your wants. Start by adding up essentials like rent, transportation, groceries, utilities, student loan payments, car payments, and also savings. Don't just guess--write them down or use an online budgeting tool. Now subtract this amount from your take-home pay. What's left is what you can direct toward things you want. Maybe you'll have enough for everything; maybe you'll have to make trade-offs. The important thing is to realize that you can't spend more than what's coming in.
Put bills on automatic. If you don't already have a bank account with online bill pay, open one and have your paycheck deposited directly if that's an option. Then set up automatic payments for your regular monthly bills.
Keep a lid on credit and debt. Even when you're feeling pinched, don't pull out the credit cards. The last thing you want is to run up debts you can't easily pay. Charge only what's absolutely necessary and always pay off your monthly balance in full and on time. Interest and late fees are a complete waste of money and can cost you plenty.
Prepare for the unexpected. Set aside a certain amount each month, no matter how small, for emergencies. Eventually you'll want your emergency fund to cover three-to-six months of fixed expenses in case you become ill or unemployed. Put the money someplace easily accessible, such as in a savings account.
Have the right insurance. If your employer offers health insurance, take advantage of it. If not, look for a low-cost, high-deductible policy. In either case, take advantage of a health savings plan to help defray your out of pocket expenses. Health insurance is an absolute must at any age, as is car insurance if you own a vehicle. You might also look into renters insurance. It's pretty low cost, but can be a lifesaver.
Get a jump on savings. Open a savings account and put aside a few extra dollars each month. In fact, make it part of your monthly budget, ideally through an automatic payment from checking to savings. Set some goals and use them as a motivation to save.
Plan for retirement. It's a long way off, but put retirement on your list of goals. If your employer offers a 401(k), aim to contribute 10-15 percent of your income. The longer you wait to start, the larger the percentage you'll need to save. At the minimum, contribute enough to get the full company match and then increase your contributions by 1-2 percent each year.
Stay on top of student loans. Getting behind on student loans can mean mounting fees and penalties. Find out about repayment processes and when repayment should begin--and always pay at least the minimum on time each month. Studentaid.gov is a good resource for more information on how to repay student loans as well as loan forgiveness programs for certain types of work.
Learn how to invest. Once you have some money saved for long-term goals (like retirement), you can put it to work for you by investing. A good first choice could be a broad-based stock mutual fund or exchange traded fund. Investing can give you the opportunity for meaningful long-term growth, valuable at any age, but especially when you're young.
Now that you've graduated, new opportunities lie ahead. Best of luck!
Carrie Schwab-Pomerantz, CERTIFIED FINANCIAL PLANNER(tm), is president of Charles Schwab Foundation and author of The Charles Schwab Guide to Finances After Fifty, available in bookstores nationwide. Read more at http://schwab.com/book. You can e-mail Carrie at email@example.com. Investing involves risk including loss of principal. The information on this website is for educational purposes only. It is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager. To find out more about Carrie Schwab-Pomerantz and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
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