New graduates are ready to direct their own destinies. At work, at home, with friends and families, graduates have abundant new opportunities and choices to make. There are many decisions to make about money and sometimes those decisions may seem overwhelmingly complicated.
As a new graduate, you should keep finances simple, try to learn something new every week and make your own decisions based on what you know. Make corrections when necessary and seek advice when you’re stumped.
Many young people think that, if they learn to invest, their futures will fall into place. Actually, there are four major areas to consistently keep in mind to ensure future security: balancing income and spending, being prepared for the unexpected, appropriate use of credit and investing.
When you get your first paycheck, divide your take-home pay into weekly amounts so you know how much you can afford to spend. Then keep track of what you spend each week. This means everything – cash, checks and credit. At the end of each week, decide if you agree with your spur-of-the moment decisions. Is there something you want that you would rather direct your money toward? As you learn about your own habits and decisions, you can devise a more complicated method for keeping track, but for now this method will help you learn to become more intentional about what you do.
The National Endowment for Financial Education suggests that you analyze your spending by figuring how much of your time it takes to buy something you think you need. Divide your take-home pay by the number of hours you work. Next, divide the item that you want to buy by your hourly wages. For example, if you make $10 an hour and you want to buy a stereo for $800, you’ll have to work 80 hours to pay for the stereo. If you charge it and pay with credit, it could take you 100 or more hours of work to pay off the stereo.
Savings and insurance are safeguards against financial disaster. If you have a savings backup, then an unexpected dental problem or minor car problem won’t put you into financial distress. Authorize an automatic payment from your paycheck. You’ll find you won’t miss it. If insurance, especially health and car, seem too expensive, buy what you can afford.
I’ll talk more about this topic next week.