May is the month of college graduations, and I talk with lots of young professionals who are starting out. For some, switching from the student lifestyle to a career is a financial challenge. With regular income, they face many choices when it comes to allocating their resources – travel, housing, a comfortable lifestyle. They have an understandable eagerness to reap the benefits of their years of preparation.
Many young workers want to achieve the financial independence to pursue lifestyle goals that may include alternative work or early retirement. My advice is always the same. I stress the long-term benefits of early saving and personal financial planning.
Here are five specific strategies that can help:
1. Prepare and Use a Personal Budget.
Create a simple personal budget for expenses based on your income and financial objectives. Set priorities for saving and spending. Review it weekly or monthly so that you are reminded to stick with it.
2. Pay off student loans.
Students can amass some hefty debts during the four or more years it takes to graduate from most colleges and universities. If you are among the nearly 70 percent of 2017 graduates with student loans, be sure to understand the exact amount you owe. Write down each loan, its interest rate, the payment amount and note whether or not the loan is a federal or private one. Today, there are plans available that offer flexible payment schedules. If you have federal student loans, you may be eligible for a repayment plan based on your income and family size.
3. Start a 52-week savings plan.
Use as much discipline as it takes to make weekly contributions to your personal savings account. Set a goal to accumulate an emergency fund of at least 6-12 months’ worth of expenses. With that amount of established financial security, your additional regular savings will add up to other items or short-term financial goals.
4. Use credit wisely
Closely monitor your credit card use. The cards are so easy to use that many people tend to buy things they don’t need. Don’t let the memory of deprivation during college years tempt you to go on credit card spending sprees. The worst way to collect a debt is with finance charges on those cards. Try to avoid charging more than you can pay off each month.
5. Participate in retirement programs.
I know that it's often hard to think about retirement as you start your first professional job. But the benefits of early investing will absolutely pay off later. Take advantage of employer-sponsored retirement plans. Having part of your regular paycheck automatically withheld prevents you from spending it. This process makes it a very effective investment option and saving even 1 percent of your salary now could be worth much more by the time you retire. Increase your contribution
As an experienced independent financial advisor, I can help you develop a personal financial plan that is compatible with your budget, your current situation, and your lifestyle goals. Ready to get started? Contact me.
Material discussed is meant for general illustration and/or informational purposes only, and it is not to be construed as investment, tax, or legal advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice.