Advice for the Graduate

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It's graduation season - a time to celebrate accomplishments and plan for the future!  What financial advice does a young person need when beginning the next chapter of his/her life’s story?  Especially the ones who may not track their Uber rides and Amazon purchases!

This is the time that college graduates and others who are transitioning to work say good-bye to the "sheltered" life and hello "real world."  If that’s you, are you ready to make the tough financial decisions?  If it’s someone you know, consider passing this along to them.

Be Responsible for Yourself

For many new graduates, this will be the first time they are required to be totally responsible for themselves.  Making good choices now may mean the difference between always struggling with finances and gaining a secure financial future.  Being financially literate, understanding the cost of debt, and learning to enjoy a lifestyle within your means are all key to successful management of your financial life.

You graduate from college and immediately get submerged in money issues.  How much should I expect to make in my first job?  What can I afford to spend on an apartment?  Where do I purchase car insurance?  What are the consequences of not paying off the monthly credit card bill?

Here's a little guidance in all of those areas to help you get started on the right foot.

The Key to Budgeting: "Limitize"

Forget “supersize” and focus on "limitize"!  This means limiting spending to the amount you can afford.  Receiving a full-time salary, may cause an immediate feeling of wealth followed by the idea that there is now plenty of money to spend on all those items sacrificed while in college.  Take the time now to design the spending plan that matches your income.

Start by determining the cost-of-living for the locale where you will be working. If it is higher relative to where you grew up or attended college, be sure to focus on the higher prices for the necessities.  Search on the Internet for average spending numbers and start building a budget using these percentages as a guide.  Determine your fixed expenses, which are those items that will consume a part of the paycheck every month, such as rent, utilities, student loan payments, transportation costs, and other work related expenses. 

Be aware that entertainment is not part of the fixed expenses!  Dining out, DoorDash, Uber rides, Netflix, iTunes, online shopping, clothes, hair cuts, and socializing with friends at your neighborhood brewery are all variable expenses.  Only money left after paying the fixed obligations can be spent on these items.  The better you become at managing and controlling the fixed expenses, the more money left for the variable spending!

Start Saving Now

The farthest thought from your mind is likely to start saving and investing.  However, with your first paycheck, you need to get into the "saving habit."  The amount saved isn’t as important as starting now and continuing throughout your career.  When creating your budget, think of this regular saving as “paying yourself first” to secure your future.

Debt Management

Taking on too much debt is the greatest hindrance to financial security.  Some debt, such as education and car loans, may be unavoidable. School loans for which payments were deferred during your college years will soon require a monthly payment.  Education loan consolidation may be helpful to establish a reasonable payment over a set period of time.

To purchase a car, most new graduates will likely need a car loan. The cost of buying now and paying later is the interest rate.  Whenever you borrow money, always calculate the total dollars going out to pay the loan interest.  You will quickly understand how important it is to make good decisions regarding what you can afford and to shop for the best loan rate!

The curse of money management is credit card debt.  Credit cards can be a terrific money management tool if used appropriately – that means paying off the outstanding balance each month.  Allowing a balance to accumulate on the credit card at an interest rate of 18% to 21% can create a black hole that is very difficult, if not impossible, to pull out of.  Generally, credit card debt is created to fund a lifestyle that cannot be sustained by your income level.  A prolonged strategy of "buy today and pay tomorrow" will lead you to quick financial ruin.  Avoid falling into this deadly financial trap!

Summary

Get your new life started on a solid financial foundation!  Make good spending decisions and always plan to save money for future necessities as well as eventual retirement.  Keeping your debt and credit card usage under control will lead to a financial life with less stress and disappointment.

Evan D. Bedel, CFP, is a Financial Planner and heads Generation NeXt services for Bedel Financial Consulting, Inc., a wealth management firm located in Indianapolis. For more information, visit the Bedel Financial website at or email Evan.

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