Now that you have graduated college and entered into “the real world”, it is time to start working on your financial life. Here are five steps to get on the right track.
- Establish financial goals
It is essential to realize that the first step of establishing your financial goals is the most important step to take, especially when attempting to get your financial life together after college.
You should get started by separating your goals into three buckets: short-term goals (between 0-3 years), mid-term goals (between 3-7 years) and long-term goals (7+ years). Once you have identified which goals fall under each category, jot down the plan of action that will help you achieve each financial goal within the given specific time frame. It is also a good idea to make each goal a S.M.A.R.T as in Specific, Measurable, Achievable, Realistic and Timely.
- Prepare an emergency fund
Preparing an emergency fund is one of those necessities you don’t realize you need until you need it. An emergency fund is just that a preparation for the unexpected that will make you whole again. Emergencies can be the loss of a job, unexpected medical expenses, home or auto repairs, or any other situations that disrupts the flow of your life. An emergency fund should be between 3-6 months worth of your monthly expenses.
You should save at least 10% of your income with a goal of saving one month of expenses. Once you do, increase your goal to two months and so forth. But remember, you must pay yourself first! This means that before you pay your bills, buy groceries, or anything else vital before setting aside a portion of your income to save.
- Plan your monthly spending
Now that you know your financial goals are and have a process in place that will help you prepare your emergency fund, it is time to create a monthly spending plan. This will help dictate where your money should go.
To start with, separate your needs from wants. You needs can be fixed expenses such as rent, utilities, food, clothing, transportation, taxes, health care, childcare and home repairs. Wants can include entertainment, eating out, hobbies and cell phone bills. Once you find out your expenses, start by paying yourself first (as mentioned in step 2), then develop a system where you are paying all of your needs or expenses in a timely manner. Your wants should be included in your budget, but make sure you are keeping track of everything you spend to assure you are not veering from your plan.
- Stay on top of student loan obligations
Regardless of how much you despise your student loans, it is imperative you stay on top of them to avoid getting into financial trouble. Student loans can really have a negative effect on your financial life if you don’t manage them properly, not only will affect your credit report, but in some cases, your paycheck can be garnished and bank account levied.
Make sure you are paying the minimums. If your current financial situation doesn’t permit this, speak to your lender about a deferment or forbearance so your loans stay in good standing.
- Use credit wisely
Using credit wisely will only help your financial situation. Good credit can help you rent an apartment or purchase a house. It can allow you to finance a car, save money on insurance, or even help get a job (in some states employers check credit before making job offers).
The first step in using credit wisely is to understand that credit is not free money and should not be used for everyday purchases. It should be used for emergencies. Also, it is important to check your credit report at least once a year to make sure what is on your credit report is accurate.