So you have just graduated from college and earned your bachelor’s degree. Congratulations! Now you are ready for your first “big boy” job earning six figures a year. Well not exactly at least for most college graduates. According to the research, the average new grad earns approximately 45,000 a year. Although this may sound like a large income to a young broke college student in reality it is not. Therefore, it is extremely important to carefully manage income and lifestyle otherwise you can find yourself in a world of financial trouble. Here are 3 tips to get you started.
An emergency fund or a “rainy day” fund as your grandma would call it is a savings account that is only used for life’s unexpected events. Although we tend to plan life out perfectly the reality is emergencies will occur. Whether it is a sudden death in the family, major car or home repair these sudden emergencies will occur and you need to be prepared. The first thing you need to do with your newly acquired income is to save an emergency fund. There are a wide variety of recommendations for the exact dollar amount for an emergency fund. However, generally speaking it should cover anywhere from 3 to 8 month of monthly expenses. This may seem like a large amount of money but you will be thankful for this large fund whenever life’s emergencies happen.
You have worked hard, made sacrifices, and graduated now it’s time to enjoy the finer things in life right? Well yes and no. Sure you deserve nice things but it is important to start out slow. A frugal lifestyle post college can require maintaining or lowering your standard of living from when you were in school. This is because there are no longer student loans or scholarships to help manage your lifestyle. If you don’t earn enough to maintain a certain lifestyle you must make sacrifices. Deciding where to live can be the largest monthly expense for most people. Experts recommend your rent/mortgage payment should be around 25% to 35% of you monthly take home pay. Roommates are highly recommended to help reduce the cost of shelter. Another option is the dreaded moving back in with your parents. Although it is typically the last option to try and save money is can be a very viable one. Moving back in with your parents on a temporary basis can be a great way to save large amounts of income in a short period of time. Frugal living can be difficult at first but if done properly and with purpose this can be a great start to you future post college graduation.
Plan for the Future
You just graduated college and now you already have to start planning for the future? YES! The future has a wide range of timelines including short term, long term, and of course retirement goals. If you moved back in with your parents a short term goal would be saving an emergency fund and moving out. Examples of long term goals include saving for a down payment for a home or career planning. Chances are you are not in your ideal career or position after graduation. Therefore, career planning is essential to a successful life. An important questions to ask is what steps are necessary to ultimately end up where you want to be in your career? Finally, the dreaded retirement planning. Since youth is on their side most young adults tend to think they will worry about retirement later. That’s not a wise decision. Most companies these days require employees to put a certain percentage of income in some kind of retirement fund. This is a great starting point. If your company does not offer this consider opening an individual retirement account (IRA). The key to saving for retirement is to start while you are young and then let compound interest takeover as you get older. Saving early will allow you to enjoy life even more at retirement.