By: Gaby S. Dominguez & Mark D. Troutman, PhD, CFP®
Congratulations! You made it; you are a college graduate! Now, you can embark on this exciting and complex chapter in life; an achievement for which you should be proud. Only a staggering 25% of the population manages to accomplish that milestone, and it has required patience, discipline, and commitment along the way. Yet as you celebrate, there is a need for acknowledging that a career and your biggest challenges await you.
You may find a lot of career advice along the way, such as “control your emotions,” “trust your instincts,” “guard your integrity,” “know what you do not know,” and most importantly “have fun.” Utilizing these points will make you effective in your career, while obtaining a more open outlook.
However, some advice is notably absent: being financially prepared. A successful and happy personal life requires the same patience, discipline, and commitment that led you to graduation, but there are additional, significant steps that need to happen. Below are six basic financial concepts that will assist you in reaching the same level of success with your personal finances.
- Create a Budget: Know the reliability of your pay and know where your money goes. Start by paying close attention to the details. The little things will add up and you might be surprised to learn how much you spend on your Starbucks coffee or from dining out each month. Seek advice where necessary to help you understand your finances and make good decisions that free up resources for saving and investment.
- Pay Yourself First: Retirement and major life decisions will arrive sooner than you think, so start planning now and make the most of your earning potential. It is a wonderful feeling to attain a level of financial freedom that allows you to work by choice and in a field you love. Make it your goal to save 10%-15% annually. Consistent investments allow earnings to compound and build wealth for you. For instance, investing $500 per month in a diversified portfolio that earns an average 6% return over a 40 year career will provide you $1 million to fund your retirement and other long term goals.
- Save For a Rainy Day: Even if your paycheck is predictable, life has a funny way of throwing us financial curve balls. You just never know when your car’s transmission will give out or when an appliance will die. Estimate the unexpected expenses that may come your way and sock away some funds in an emergency reserve account each month. Having a rainy-day fund, totaling 3-6 months of living expenses, means you don’t have to dip into your retirement savings or rack up debt to meet those unexpected expenses.
- Beware of Excess Debt: There is good debt (for example, a mortgage) and bad debt (such as credit cards). Mortgage interest is tax deductible (for mortgage debt $1,000,000 or less) and generally low (at present, about 3% for a 30-year fixed mortgage), while credit card debt is generally high (10%-20% annual rate on your balance) and is not deductible. Don’t underestimate how quickly interest can add to the true cost of your purchases. If you must carry a balance on your credit card for a brief period, pay off the balance as quickly as you can. If you carry balances on multiple credit cards, focus on paying off the higher interest rate cards first.
- Build, Protect and Monitor Your Credit: Be organized and pay your bills on time to avoid late fees and impairing your credit. Having good credit means you’ll be able to borrow at lower interest rates when needed. Monitoring your credit will also keep debt management front and center in your mind.
- Diversify Your Investments and Think Long-Term: Invest in high-quality, low-cost stock and bond investment options. Build a diversified portfolio to smooth out volatility. The younger you are, the more you can look long-term and invest more heavily in stocks that may provide higher returns over time.
By applying this advice and taking steps to better your own financial journey, you will inevitably be well on your way to absolute success in your professional and personal life!
Gaby Dominguez is an Executive Assistant with Kirk Capital Advisors. She can be reached at gaby@kirkcapitaladvisors.com. Mark D. Troutman, PhD, CFP® is Director of Financial Planning for Kirk Capital Advisors. He can be reached at mark@kirkcapitaladvisors.com. ■
