Personal Finance and Investment Advice for Recent College Graduates
After years of hard work and determination, you finally have your degree in hand. Reaching this monumental milestone will leave you feeling buoyant with possibility and bright-eyed for your next adventure. However, there comes a time in every graduate’s life after they’ve tossed their cap and hung up their robe when the thrill of making it out becomes eclipsed by some anxiety about entering the real world. You experience, perhaps for the first time, real financial dilemmas when confronted with a desire to stand on your own two feet while simultaneously juggling grocery bills, car payments, rent, and possible student loans. Tackling this challenge can be a daunting task, but it isn’t one that you have to navigate alone. In this article, we’ll share with you a few pieces of advice on how to manage your money, invest wisely, and lay a solid foundation for your financial future.
Budget. Budget. Budget.
One of the first and most important savvy financial moves you can make right now is to create a budget by taking inventory of your expenses and tallying your income. We recommend to cut spending where possible and to evaluate your current situation to project where you can go. Craft your financial plan using the 50/30/20 rule, which allocates 50% of your money to pay for essentials (rent, groceries, utilities, car, etc.), 30% to pay for nonessentials (travel, dining out, entertainment, etc.), and 20% into savings. You should plan on putting about 3 to 6 months of basic living expenses into a separate savings bank account in case of an emergency to avoid dipping into your retirement fund. This 50/30/20 guideline can be adjusted later down the line, but it is a perfect place to start. Bottom line? Live well within your means, and plan for the unexpected.
Pay Off Debt and Build Your Credit Score.
If you have extra room in your budget, consider repaying any student loans you have looming over you. To make sure you are in good standing, pay a little bit off your loans each month, and prioritize repayment on loans with the highest interest rates first (typically private loans). A great way to stay ahead of this debt is to enroll in an autopay program, though be wary of interest rates. If you are facing financial difficulties and cannot tackle this debt right now, you may be able to request deferment, forbearance, or opt for an income-driven repayment plan.
We also urge you to stay on top of credit card payments. Limit yourself to no more than 3 credit cards, and set a schedule to pay these bills. Having a good credit score is paramount as your credit score is a rating that financial institutions look at to assess your likelihood of paying off debt. A strong credit score will help you in tackling key financial decisions as a new grad, like renting an apartment or landing an important job.
Start Saving for Retirement Now.
While retirement may seem like an issue for later down the road, it is crucial that you start preparing now. Believe it or not, supporting yourself during your elderly years will require a hefty sum. We advise taking advantage of your Roth 401K’s if they are offered by your employer, or a Roth IRA if they are not, to begin saving for retirement. Contribute regularly to these plans to capitalize on an employer’s maximum matching contribution should your company provide these as it is essential free money. These plans are great because they are funded with money that’s already been taxed, so you won’t be charged income tax in retirement. Roth IRA’s are a smart decision for new grads who are in their early careers and who have lower salaries because they’re likely in a lower tax bracket than they will be when they retire.
Invest Early and Broadly.
When it comes to investing, time will be your best friend. Compound interest can make a lifelong difference in the future when you start investing at age 22 rather than 40. Stocks are best for long-term holdings as they grow quicker than bonds or cash, meaning you make more over time. We recommend being balanced, disciplined, and diverse with your portfolio in order to mitigate risks and earn substantially long-term. You should look into owning a variety of investments (i.e. exchange-traded funds, mutual funds, index funds) and to spread your wealth across companies, sectors, and countries. While this may seem complicated now, we can help. Schedule a consultation today with an advisor from Total Clarity Wealth Management to learn more about building your investment portfolio!
Moving into the next phase of your life will inevitably bring a few financial hurdles, but that does not mean you can’t get ahead of the curve right now! Over at Total Clarity Wealth Management, we want you to succeed in all of your financial endeavors, and we have the expertise to get you where you want to go.
Did you like our tips? Have any questions? Let us know! Reach out to our advisors today.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.