If you are reading this, chances are you are graduating college soon. Congratulations! You survived four years of classes, all-nighters before finals and hopefully had some fun along the way. It wasn’t easy but you’ve made it. Now it is time to plan for your next steps.
Since you are just graduating college, the primary focus should be on becoming employed, setting your goals and making a budget. Your job will introduce you to things like employer benefits and retirement savings – and you’ll learn what you really get to take home from your paycheck after taxes are taken out. From what remains, you will need to create a budget, which may include a line item for student loan payments. Above all, you will need to set some goals so that you have a high-level understanding of where you are heading. Your goals will ultimately guide your financial decisions and how you allocate potential savings.
The Workplace Hustle
You scored your first job in the field you love at a great company…or perhaps you just have a job at a company. Either way, it provides you income to support yourself, or if your company provides a 401(k) plan, it could be a great way to start saving for retirement early on. Some employers offer a 401(k) matching contribution, which means that they contribute a certain amount to your retirement savings plan, based on an amount that you put in. This can be viewed as “free money” and if saving for retirement is a priority (more on that below), then it would be foolish not to take advantage of the opportunity.
Now that you have a job and income, let’s set some goals. This is a chance to consider your future.
- Identify – What do you want for yourself? Think with the end in mind.
- Quantify – How much will it cost and when do I want it?
- Prioritize – Which goals come first?
Once you have taken these steps, it’ll be time to create a monthly budget and master your cash flow, which tracks what’s coming in and what’s going out. Doing so will ultimately help you determine how much may be left over each month to allocate towards your financial goals.
Money, Money, Money
Take a look at your paystub and start to understand all the different things that are withheld from your paycheck like taxes, health insurance premiums and 401(k) contributions. What you end up with – your “net” – is the money you actually have to build your budget. Try to track your expenses over the next three to six months to see if you can meet your budget. If your expenses don’t average out to what you had planned, reassess your budget. Remember to be honest with yourself and to be patient: mastering cash flow takes time.
You should also start building a cash reserve. This is generally three to six months of your living expenses in cash for emergencies, ideally in a checking or savings account. If it turns out that your dream job isn’t such a dream, it can be helpful to have some extra cash on hand if you leave and it takes time to find a new job.
Budgeting for Student Loans
For many Millennials, the goal of paying off student loans will account for a large percentage of your budget. Start by taking ownership of your debt. Know who you owe money to (government or private loans), how much you owe and the interest rates associated with each loan. Educate yourself and don’t be in denial. Get over the emotional hurdles so you can better tackle the challenge. If your budget is tight, explore your loan repayment options. There are federal and private lenders who will consolidate loans or refinance them but be sure to do your research, as some options may not be the best fit for you.
Take Action on Your Goals
Now that you have a budget and understand your cash flow, you know what additional savings you may have. Go back to your goals and start making some decisions about what is most important. If might be paying off student debt, building a cash reserve or saving for retirement. If your employer offers a 401(k) with a match and you want to save for retirement, take advantage of it.
No matter what your goals are, making a plan for your future is a great place to start. Seek out a CFP® professional to help.