Clueless about personal finance? Just follow the money
We can't all live like the Kardashians but we can be smarter when it comes to making our money matter. Recent graduates would do well to follow these basic budgeting guidelines.
For many recent grads, finishing college means leaving a certain type of bubble in which one could exist blissfully unaware of the not-so-fun realities of the world like finding a job, living on your own and managing your money. Now, the bubble has burst and it is to time to suddenly and quickly grow up. Personal finance is perhaps the one aspect of life that many new grads struggle with. In addition to cluelessness about money management is the debt dilemma. No generation before has finished college with so hefty a load of debt. What's a new grad to do? First of all, don't panic. Personal finance doesn't have to be complicated and scary. Here are some tips to get you started.Outline a budget you can commit toIf you don't have previous experience setting up a budget, you may need to take stock of all your expenses and debts before setting one up. Figure out how much you spend on monthly necessities like rent and electricity and then factor in fixed monthly payments like loan, car and credit card payments. After that, track how much you typically spend on groceries, entertainment, transportation, and other variable costs. Soon you should get an idea of what percentage of your salary you can allocate to each category. Attempt lowering extraneous expenses like entertainment in order to increase payments on debts or start a savings account. Most importantly, don't set up a budget you can't commit to consistently. Be realistic.Prioritise tackling debtWhether we like it or not, some form of debt or another will likely follow us our entire lives. Still, it is not completely impossible to aspire to a debt-free existence a few years from now. This is only possible if you make paying off debt a priority. Instead of just paying monthly minimums on loans, budget with the aim of eventually doubling your monthly contributions. If there is a certain time of the year when you expect to receive more money than what you typically get from your paycheck (think Christmas bonus, tax return, or an apartment deposit return), apply it to your loan payments so you can cross that debt-free finish line faster.Use credit cards responsiblyMany recent grads avoid credit cards altogether, and, depending on who you talk to, there's nothing wrong with that. Still, the responsible use of credit cards can help you tremendously in building a good credit rating. This in turn will help you qualify for a mortgage or car loan in the future. Using credit cards responsibly means putting small expenses like gas and groceries on your card, and paying off the balance every single month.Utilise technology to simplify money mattersThanks to the wonders of technology, there has been no better time than now to simplify the way you manage your money. What's more, most personal finance sites and apps, like Mint, Simplifi, Debt Dog, and iWallet, are all free and easy to navigate.Plan for the futureThe future may seem like distant mirage but it's closer than you think, and contrary to assumptions you may have held in university, it is all too real. If you don't want to end up working until your 90th birthday or saddling your potential kids with a nice, big debt pile, start saving and investing aggressively. If you can afford it, put away at least 10% of your wages into a savings account. If your employer offers a superannuation plan, contribute as much as you can spare. As a young investor, you can afford to invest in high-risk stocks that offer larger returns in the future. Another future consideration you should plan for is your career trajectory. Do you eventually want to move to a different city? How much will your pay have to increase in order for you to maintain your current standard of living? Planning for future expenses like buying a home and starting a family can never be mapped out too early.
In the final analysis, personal finance is, as the name suggests, very personal. How you budget and save will depend on your needs, desires, and means. Still, most sound money management strategies are simple and straightforward. As long as you set goals and commit to meeting them, you can enjoy the moment while still looking forward to the future.
