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Start out into the world knowing how to best manage your money after college.
There’s nothing like the feeling when you graduate college. You have your whole life ahead of you! It’s a time when you start making your own decisions, land your first job, and establish your own financial responsibilities. While some may think “responsibility” can wait, your 20s are when you should start laying a solid foundation for your future. Here’s a checklist of how you might consider managing your money now so you don’t have to worry later.
1. Create a Budget Outlining Your Expenses
After you graduate college and move out into the real world, there’s also “real” expenses to start thinking about, like a mortgage or rent, utility bills, car insurance, etc. Make a list of all your expenses so you know how much is going out the door each month and compare it to what is coming in.
Note: As a general guideline, you should not spend more than 30% of your monthly income on housing. That percentage includes utilities, property taxes, and homeowners insurance, etc.
2. Start a Savings Account (you’ll thank me later)
If you can get into the habit of putting away a couple hundred dollars each month, you will start to build your own financial foundation. It’s recommended to save about 20% of your income and set it up as an automatic withdrawal to keep payments consistent. This can be used in case of emergency, if you’re ever between jobs, or when you are ready to put a down payment on a house.
3. Pay Off Debt
If you have student loans that followed you after college, it is a priority to get those paid off. The reason you don’t want them hanging around for too long is that you’re piling on the interest that you owe. It’s a good idea to weave your student loan payment into your budget, so it becomes an automatic monthly expense. If you get a bonus at work, use a chunk of it to pay off your loans to reduce the interest fees being incurred over time.
Did you know that there is a federal student loan forgiveness program that you may qualify for? Find out if you qualify (or how to plan to qualify).
4. Invest in a 401(k)
Many companies offer 401(k) contribution matching opportunities. This means that when you deposit a certain percentage of your paycheck into a 401(k) account, your company will offer you free money (reread that sentence). Contributions can come in three different forms: matching (50 or 100 percent), non-elective or profit sharing.
Not only is the company contribution aspect a bonus, but your deferred salary goes into the account before taxes and grows tax-deferred, where you will not owe income tax until you retire. But, don’t take it out before 59 ½ because you will be charged a 10 percent penalty.
5. Get the Necessary Insurances
In addition to a 401(k), your company may offer other financial and health benefits as well. Take advantage of these opportunities and make sure you are covered with health insurance, life insurance and disability insurance. Insurance protects you financially so you don’t have to pay out-of-pocket expenses with that nest egg you’re trying to build.
Now that you’re headed out into the great wide open, it’s an ideal time to start a financially healthy lifestyle, as it will lay the foundation for how you manage money into the future. Call (781) 247-5569 or text the office line at (781) 790-4504 if you would like additional guidance with your tax returns or financial planning goals. Visit www.erocktax.com to learn how we can help.
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About Stu: With more than 30 years of experience as a tax professional, Stu Steinberg brings a broad depth of knowledge to his work with his clients. Stu founded Erock Tax to help provide tax and financial planning strategies to individuals, families and small businesses and is passionate about empowering his clients through education about their money health. Stu is highly energetic and brings a sense of optimism, creative problem-solving and a deep level of commitment to every Erock client.