The Ultimate Graduate’s Guide to Personal Finance

Summary

Personal finance is a challenge for graduates who enter the world of work and incur more responsibilities than they had while in school. Being financially successful will require some self-discipline, setting short- and long-term goals, and careful use of credit. Here are all of the key factors in effective personal finance management.

Outline

  1. Establish a Detailed Budget
  2. Establish an Emergency Fund
  3. Setting a Long-Term Savings Plan
  4. Setting a Short-Term Savings Plan
  5. Watch the Amount of Credit You Use
  6. Protect Your Credit Score

Personal finance during those college years was probably quite simple (unless you were on your parents’ dime or had a trust fund). The operative budget word for most students was “tight.” There was financial aid, student loans, and often a part-time job, to meet expenses. If any money was saved, it was short-term, probably for a spring break trip. Life was free of responsibilities other than getting through that coursework and walking across that stage.

Suddenly, that is all a thing of the past. Here you are, a degree in hand, in that first career position. You are now an “official” adult with steady income and financial responsibilities – rent, utilities, student loans, credit card debt, maybe a car payment, etc. And it’s time for a real budget based on the sound principles of personal finance.

Time to unpack those principles.

1. Establish a Detailed Budget

If you have never set up a budget before, you may need some help. There are plenty of software options that will walk you through the process so that you don’t leave anything out. In short, the process will involve the following:

  • You have a monthly income. If you are on a salary, this is set. If you are an entrepreneur, you may have to estimate, based upon the average over a several-month period.
  • Next, you have required monthly expenses – those items that you must pay for – rent or mortgage, utilities, student loan, car, credit card, and insurance payments, grocery, gas, and personal expenses, for example. These must be listed in a column titled “necessities.” Some may be estimated – utilities and groceries, for example.
  • Once you have subtracted the expenses from the income, you will have an amount that can be identified as “discretionary.” And this is where your ability to practice self-control and responsibility comes into play.

No one is suggesting that you do not enjoy some “wants” with some of your discretionary money. Going out to dinner; buying that new pair of shoes or jeans; joining a fitness club, etc. After all, if you cannot enjoy the fruits of your hard work, life will become nothing more than mere existence.

Understand that your budget is a living document – it will change over time and should be updated regularly.

At the same time, you have to think long-term – something you may have not done while in college. So here are the other factors involved in responsible personal finance, as you begin your career life.

2. Establish an Emergency Fund

There will be unforeseen events – you can’t avoid them. You may lose your job; you may have a medical emergency that is not fully covered by your health insurance; as an entrepreneur, you may have a “dry” period.

Experts disagree on how much of an emergency fund you may need, but, at a minimum, you should have three months of expenses in reserve. This you will set aside and not touch until that real emergency shows up. And once it is over, you will need to replenish that fund.

3. Set a Long-Term Savings Plan

It’s hard to think about college funds when you have no children; it’s hard to think about retirement when you are in your 20’s. But these things have a way of “creeping up” on you. There may be opportunities at work if you are employed – 401K’s for example. As an entrepreneur, there are a variety of IRA or annuity options that will “force” you to have those long-term savings programs.

4. Establish a Short-Term Savings Plan

This should be separate from your emergency fund. You may have short-term goals – a down payment on a home, even an annual vacation, for example. Establish an amount from your discretionary income that can be deposited into that savings and have it automatically moved there. The adage, “you won’t miss what isn’t there” applies here. If that amount is taken from your checking, you will live with what you have left just fine.

5. Watch the Amount of Credit You Use

Every day in your mailbox or your inbox, you will receive offers for credit cards – all with rewards, interest-free for a period of time, and more incentives. The fewer credit cards you have, the less you will owe. One or two should be your limit. And those high-interest minimum payments are “killers” – years to pay off.

One of the challenges that students have is the use of credit cards while they are still in college. Over 50% of undergrad and grad students in four-year colleges have at least one credit card. They use these cards for expenses that are not always planned for. For example, they may contact an online writing service and say, “Help me write my thesis,” or turn to professional writers for tutoring services when they are in a bind. Others, with less self-discipline, may use their cards for impulse purchases, and end up with a hefty balance once they graduate.

6. Protect Your Credit Score

Your credit score impacts so many things. It is used when you want to buy something on time, such as a car. It is used when your insurance rates are determined. The higher your score, the less interest you will pay on time purchases and the less you will pay for a home, renters, and car insurance. Do the research and understand all of the factors that determine your credit score, so that you can ensure it is as high as possible.

You Can Do This…

Commit to responsible personal finance management by using the six strategies of this guide. Will they all work perfectly all the time? No. But this is your starting point. Over time, you will enjoy the fruits of your labors and be financially healthy.

Author’s bio

Jessica Fender is a professional content creator, copywriter, and editorial manager on Papersheaven. Her experience in digital marketing and professional development has enabled her to write better articles, essays, and case studies on these topics. Jessica enjoys reading personal development lit and listening to podcasts.

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