College graduates everywhere are celebrating their achievements and embarking on their next journey. Now is the time to think about financial planning. The earlier one starts, the greater the odds for success now and in the future. The following adulting checklist can help.
Begin by creating a budget.
Understanding how much money you earn, how much you spend, and most importantly, where you spend, is critical. Gather your financial statements and create a list of monthly income, fixed expenses (i.e., rent, debt payments), and variable expenses (i.e., food, gas, entertainment).
Next, divide your income into three categories. A good starting point is 70 percent for living expenses/debt, 10 percent for fun/gifts, and 20 percent for saving/investing. Don’t spend more than you earn.
It’s a good idea to review your budget monthly to ensure you’re on track or to make adjustments as needed.
Key Budget Elements
Be sure to incorporate the following steps into your budget and financial plan:
- Start saving. Automatic saving of your paychecks with direct deposit is easy and effective. Most employers will allow you to split up direct deposits, so you can save percentages to your checking account, savings account, and a retirement plan.
- Build an emergency fund. Having cash on hand for unexpected expenses (i.e., car repairs, veterinary bills) builds financial stability and reduces anxiety.
- Buy disability insurance. Your biggest asset as a young person is your ability to earn an income. Protect that earning potential with disability insurance, which helps cover your bills if you experience a major physical or mental health event and can’t work.
- Eliminate debt. Student loans, car payments, credit cards – most people accumulate debt at some point. The sooner you can eliminate that debt and begin paying expenses with income cash and savings, the sooner you’ll build a strong financial foundation for the future.
Finally, you’re never too young to work with a financial planner. Whether you just want help getting started or want more in-depth guidance, the Perspective team can help.
To learn more, watch our 2-minute video on the Six Elements of Financial Planning.