If you have recently graduated from college, you are probably finding that there is much to learn that was not included in your coursework. Financial planning is one of those skill sets that most people have to acquire on their own. If you already have your first post-college job, you are probably earning more than you have ever earned before. In order to get the most out of that new paycheck, Boelman Shaw Capital Partners in Des Moines offers the following tips to guide you as you’re just starting out in your career.
1. Educate yourself.
Without professors and course schedules to tell you what you need to learn, you will have to decide for yourself what skills and abilities are important to cultivate as you move through life. Taking the time to learn about personal finance now will afford you the benefit of sound financial planning from the beginning of your career so you can make the most of your professional earnings for as long as possible. You may decide to take a formal course at your local community college, but you can learn a lot online for free. The Federal Reserve offers some valuable links to educational resources. The Financial Literacy and Education Commission, tasked with strengthening the financial capability of all Americans, also offers a wide variety of educational resources on its website.
2. Use a budget to make sure you’re spending less than you earn.
Developing a household budget has never been easier. Debit and credit card use and online banking it make it fairly simple to track your income and expenditures. There are also some free online programs, such as Mint, that compile all of your financial information so you can view it in one place. Creating a budget involves a just few key steps:
- Know your income.
- Know your expenditures.
- Separate essential from nonessential expenditures.
- Be sure to spend less than you earn. If you’re already earning more than you spend, then begin to think strategically about what to do with your discretionary income.
3. Pay off debts as quickly as possible, and avoid additional debt.
If you took out student loans to fund your education, you probably have a grace period before you are required to start making payments. If you are able to start making payments before the end of the grace period, you can get a head start on tackling that debt before it starts accruing interest. Once payments are required, paying more than the minimum payment will help keep interest down over the course of the loan. Setting up automatic deductions from your bank account can also lower your interest rates, avoid late payments, and help you resist the temptation to reduce the amount you have decided to dedicate to your loan payments in any given month. If you have other, higher-interest debt, however, such as credit cards, focus on paying those off first, then work on your lower-interest student loan debt.
Avoiding taking on new debt will help you establish your financial security and open up opportunities for lower interest rates on future loans and lines of credit. The fact that you have an income that can support a new car payment or a mortgage payment does not necessarily mean that acquiring these things right away a sound financial choice. Limiting your debt burden and paying off lines of credit regularly will help to keep your spending at a controllable level and help you to build your credit history, which will lower your interest rates and make it much less expensive for you to buy that car or home a few years down the road.
4. Set up an emergency fund.
Once you ensure that your income exceeds your spending, start an emergency fund. Because life does not always go as planned, most financial planning professionals advise saving 6 months of living expenses in an easily accessible account. This is a good place to start when deciding what to do with that discretionary income.
5. Plan for the future.
When you are just beginning your career, you may not yet be thinking about retirement, raising children, or the cost of sending them to college. Recognize, however, that these are things that you will probably want the opportunity to do in the future, and take steps to ensure that you will have the freedom to do them. “Pay yourself first” is a good rule to follow when establishing your budget. After you have your emergency fund in place, set aside a certain amount each month for long-term savings.
If your employer offers a retirement plan, take advantage of it. Many employers match employee contributions up to a certain level (typically 4-6% of earnings). If at all possible, take full advantage of matching contributions. Failing to do so is like leaving part of your paycheck lying on the table when you leave work.
If you do not have access to an employer-sponsored plan, set up your own. A Roth IRA is a good choice for young professionals. You don’t have to worry about losing access to your contributions because all of the contributions you make to the fund (although not the earnings) are available for withdrawal at any time without tax or penalty.
6. Meet with a knowledgeable financial planning professional.
An experienced financial planner can help you manage your resources as effectively as possible so you can get the greatest possible benefit of your income. Boelman Shaw Capital Partners in Des Moines offers complete financial and tax planning under one roof. This unique feature allows us to get a more complete picture of your finances than other financial professionals and give you comprehensive advice on retirement, education, estate, insurance, and tax planning.
Material discussed herewith is meant for general illustration and/or informational purposes only, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice.