Personal Finance Thoughts for the New Graduate
As I think about those in their 20s who are beginning their careers in this very difficult economic environment as they graduate from college, I wanted to pass along a few thoughts from my many years as a C.P.A. to those who choose to hear them.
As trite and old-fashioned as it may sound, it is so important to create a budget for yourself, but more importantly that you stick to that budget. The budget should detail your monthly income and expenses, with the very first line of the expenses (giving it the importance that it always should have) being paying yourself, or putting money in a savings account. Even if you are living on a shoe string, you should be able to save at least $1.00 each month. If you start the good habit of saving money every month, then each and every time your income goes up, you can increase your savings and before you know it, you have a nest egg. In creating your budget, be realistic about what you can afford, track your spending to make sure that you are living the budget.
Channel your savings into the following priorities:
1. Regular savings until you have at least 6 months – 18 months of cash expenses in your savings account as your emergency fund.
2. Long-term investments: it is truly never too early to start saving for your retirement. But, also split this long-term investment savings between retirement and other large purchases that you look to make within 10 years (a house, for instance).
Establish a good credit history. Open a credit card account if you haven’t already done so, but be sure to pay on time every time so your credit score will increase. Also establish a good paying record for your student loans. So many opportunities today are tied to your credit history, including the amount of your property and casualty insurance premium and the rate you will be offered when you want to take out a mortgage.
It may be a long time since I graduated from college, but I do remember the temptation of spending when you receive your first few paychecks after living like a pauper for the 4 (or more) years of school. If you commit to taking these steps and sticking to them, your financial health will begin well and continue to prosper for your entire career.
Jacquey Dougherty, C.P.A.