College graduates, allow me an older sister moment to impart some financial wisdom as you step off campus. Your wealth, regardless of how much or how little you have, should create opportunity and help you achieve whatever you’ve been dreaming up for yourself over the last four (or more) years. This takes a plan for how you’re going to spend and save your money. Here’s a simple road map to set you off in the right direction. I’m keeping it brief to accommodate your post-finals attention span. This will be a two part series. In this first article we’ll tackle the first three of five items.
1. Set goals
2. Understand your debt
3. Understand your cash flow
4. Establish a budget for living below your means
5. Organize your accounts
Step 1: Set Goals
Starting off on your own post-college is a perfect time to set personal, professional and financial goals. Write them down and make sure they are specific: cost, timeline, and detailed description. Also, make both short- and long-term goals.
To get you started, here are two financial goals that are a must:
- Build an emergency savings fund
- Build long-term savings (i.e., retirement)
I’m going to give you specifics on how much and where to save for each of these goals in Part 2 of this series, but for now, just wrap your head around not spending every dollar you earn and commit to both short- and long-term savings.
I know you have little clarity on what your needs will be 40+ years from now. Even if you don’t buy into the retirement concept, you will have financial needs late in life (e.g., aging parents, health issues). You are not invincible and chances are you will reach an end to your income-producing years. Also, it simply makes good tax sense. You have options to save on taxes by putting money into various retirement accounts. Keep as much hard earned money in your pocket as possible, not the IRS’s.
And for those of you charitably inclined, here are my recommendations around giving goals.
Think through the organizations and causes you want to support (either through time or money). Then start to prioritize them and decide what you’ll support immediately. Which causes do you want to regularly support and which will be more one-time or annual in nature? I recommend some portion of your giving be recurring, as this makes it much easier to stay committed.
Set short-term and longer-term giving goals. What’s possible this year and what’s your ideal level of giving? Give what you can now and work toward your ideal level of giving. Most of you will have limited resources with your first job. Giving in small amounts when you have relatively little to offer will make you more likely to give once you’re in a season of plenty. And your small giving matters to whomever is receiving it and you just might realize that giving out of your limited means brings you a lot of joy.
Step 2: Understand Your Debt
Most of you have student loan debt. There are more resources than ever to help support and educate you as you prioritize paying off your loans. The first step is to figure out how much you owe and to whom. Sometimes your loans are sold between lenders and there’s always someone called a loan servicer who helps your lender manage repayment, so it can quickly get confusing.
Pulling your credit report will tell you about your outstanding loans. Your credit report includes information on all your credit accounts, which includes your student loans. Your credit report will show you when you opened the account, the loan amount, payment history, and remaining balance. You can learn more about your credit report and how to access it in our credit post.
The National Student Loan Data System (NSLDS) is another resource to help you determine the amount you owe. You can log in with your social security number and other basic information to see a list of your loans and grants. The website will show you the total amount of your loan, the balance of what you still owe, and more. You can access the NSLDS here.
For the sake of chugging through the rest of your road map, I’m not going to dive any deeper into loans. Bottom line: figure out how much you owe, take your payments seriously, never be late with a payment (automate!), and educate yourself. If this is your first experience with debt, I understand it can feel daunting, but you’re a college grad. You can handle it! Read this article on federal loan repayment options by Student Loan Hero. I also recommend you sign up for their newsletter and check out the rest of their great content.
Feeling discouraged? Read this refreshing perspective on the upside of student debt.
Step 3: Understand your cash flow
Spending your money in the right way starts with understanding how you’re spending your money. One thing you can do right now to start preparing for post-graduation life is to begin tracking your spending in Mint or another expense-tracking tool. Having some sense of a baseline when it comes to spending helps you create and tweak a budget faster. Start by connecting your checking and credit card account and let Mint do the categorizing for you. Mint will do a decent job of categorizing things for you initially so you don’t even need to set up budget accounts unless you want. The main goal is to understand where your money is going. We’ll discuss setting up a budget in Part 2 of this series, though if you want to jump ahead, sign up for my budgeting toolkit.
That’s a wrap. Focus on these first three tasks and I’ll be back next week with the rest of the details on your road map.