It’s official! I’m sure you never thought the day would come where you would collect your college diploma and be on your way. You are likely moving out of your college apartment, saying goodbye to your friends, and gearing up for “adulthood”. At this point, you may have accepted your first job offer or perhaps the recent impacts of the Coronavirus have you waiting to plan your next move. As you attempt to navigate the future, here are five financial tips to consider.
- Housing Costs
Whether you’re relocating or moving into a “yo pro” (young professional) community near home, it’s important to be aware of how much you can or should fork out for your housing expenses. Generally speaking, your housing costs (rent and utilities) should not exceed 30% of your gross (before taxes) monthly income. If you’re not sure of the utility costs, be sure to ask the leasing company for an estimate.
- Emergency Fund
- An emergency fund is especially important as you navigate the early stages of your career. Typically, an emergency fund should be about 3-6 months of expenses. Depending on the reliability of your income (maybe you’re taking a commission-based role) you may want to consider having up to 9 months of expenses in a liquid cash reserve.
- You may be thinking “I have no clue what my expenses are”. Take some time to create a budget. Don’t panic, a budget doesn’t mean you need to count your pennies. However, it is important to know where your money will be going. So start small, make a spreadsheet and write out all the expenses you already know you will have (car insurance, rent, student loan payments, wifi, subscriptions, etc.). Remember, it’s a work in progress.
- Student Loan Debt
- If you're feeling overwhelmed about student loan debt, remember you are not alone. First things first, assess your loan situation. Set up an account (or accounts if you have more than one loan provider) to make sure you’ve captured all of the loans outstanding. You will probably have a 6-9-month grace period before the first payments are due, but it’s important to review them as soon as possible to allow room in your budget as you are making other spending decisions. If you need to use this grace period to start building an emergency fund, consider doing so.
- Next, do your research! Determine a debt management strategy that works for you, such as the avalanche or snowball method. Understand the different types of loans you have (federal or private, subsidized or unsubsidized) and the terms of each loan. Not all loan debt is created equal.
- Lastly, if you have more than one service provider, you might be thinking about loan consolidation. Be sure to do your homework here. Factor any fees associated with refinancing into your decision and you may find that consolidation is not your best option.
- Employer Benefits (401k)
- It’s possible you will need to be at your company for some amount of time before you can participate in the company 401k plan. As soon as you are able to enroll, it’s a good idea to contribute up to the specified match contribution percentage while you are paying off your student loans and building your emergency fund.
- If you do not have student loans and you have built an adequate emergency fund, studies say you should save 15% of your gross income for retirement. However, it’s important to consider any near-term goals you may have (saving for a down payment on a house, a new car, etc.). Short-term savings should never be invested in a company retirement plan.
- Consider increasing your 401k contributions as your salary rises throughout your career.
- Establish a relationship with a Financial Advisor
- Lastly, remember it is never too early to seek a relationship with a financial advisor. It’s at the beginning of one’s career that some of the most important financial decisions are being made. When in doubt, seek help from a professional to get started on the right foot.
I hope that you can utilize these five tangible steps as you begin transitioning to the early career stage. Graduation is a memorable time and yours will be even more memorable with the current situation. If the Coronavirus has put a damper on your post-graduation plans, hang in there. You will be facing some of these important decisions soon enough. We wish you the best of luck!
About the Author: Breanna Stein is an Associate Financial Advisor at Fullen Financial Group. She graduated Cum Laude from The Ohio State University with a Bachelor of Science in Consumer and Family Financial Services and a minor in Business Administration from the Fisher College of Business. She is a member of the Financial Planning Association of Central Ohio as well as the NextGen chapter.
Breanna is passionate about creating relationships with young professionals early in their careers to establish consistent and healthy financial practices. She also enjoys growing relationships with young professionals as they continue to progress in their personal and professional life.
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