College Graduates Financial Planning

After students graduate college the time comes to take their finances in their hands. Even though college years provide a good experience that teaches them how to deal with their finances, things become a little bit more complicated after graduation. This is so, since graduates now have to deal with such issues as credit, insurance, mortgages and many others.

The first thing that should be done after graduation is the establishment of a financial plan on how to achieve the desired house, new car or fancy clothes. Things become more complicated if the graduate has used loans to finance its tuition fees.

Financial Planning Step 1

The establishment of a plan allows graduates to live within the budget they have available and manage to allocate for the future financial goals they want to pursue. The first step is the listing of the expenses you incur and the keeping of track of these expenses. The expenses should be divided into fixed costs, such as utilities bills and rent, and accidental costs, such as clothes and entertainment. After listing all your expenditures try to find areas where you can cut any unnecessary.

An important component of every financial plan is the emergency fund, which will cover any unexpected expenses, such as injuries, job layoffs and etc. the emergency plan should include money enough for the coverage of up to six months and this money should be used only when an unexpected event occurs.

Financial Planning Step 2

After you have established your plan, make sure that you pay back the debts you have accumulated, because you may deprive yourself of the dreamed new car because of unclear credit report.

Graduates are often offered with many credit card opportunities. You should be careful when selecting to use a particular one and examine the interest rates you are charged. Additionally, you should pay attention to the student loan you have taken to finance your college studies. Since, most loans require you to start repaying it six months after graduation, so you should include these expenses in you budget. Many loans allow for deferment, but you should use it only if you don't have any income to cover the loan after graduation.

Financial Planning Step 3

After you have made a clear view of your expenses and incomes, it is time to start saving and investing. You should first establish you financial goals and start working toward their achievement. Two strategies can be applied:

1. Saving

   This tactic is suitable for the achievement of financial goals in the short-term. An example of a short-term financial goal is the purchase of a new car. The tools you can use are:

   • Bank accounts
   • Certificates of deposit (CD)
   • Money market funds
   • Other cash investments

   Such investments are characterized by lower levels of risk and higher stability. However, their returns are lower than the other investment options.

2. Investing

   This tactic is suitable for the achievement of long-term financial goals. Examples of such include the purchase of a car or allocating money for retirement. Tools that can be used include:

   • Stocks
   • Bonds
   • Mutual funds and etc.

   These investment options are more volatile than the cash investments mentioned above, but they have higher returns. Over the long-term, these investments lead to a higher growth in your assets.

3. Employer-Sponsored Plans

   Today, almost every employer offers company-sponsored retirement plans. So, check whether your employer provides such and make regular contributions to it. These contributions are tax-deferred. The earlier you start the better. Additionally, some employers provide contribution matching, which further increases your assets.

4. Individual Retirement Accounts

   IRAs (Individual Retirement Accounts) can be a supplementary item to your employer-sponsored retirement plan. You can open an account even if your employer doesn't provide you with a retirement plan option. Limits to the contributions you can make are established by the SEC and you should strive to maximize the amount you can allocate. Different IRA types use techniques that teach graduates to become disciplined investors.

Before selecting the investment tool you are to use, you should identify your financial goals and needs. In accordance with them select the investment type that best fits them. Diversification should be your main focus so that you can minimize the investment risk.

Final Piece of Advice

You may think that studying time has ended with graduation. But you are wrong. You should commit to constant learning in order to make educated investment decisions. Keep in mind that throughout your lifecycle your financial goals will change because your needs will change. So, from time to time you will have to make the appropriate adjustments to your asset allocation. Take a lesson from every mistake you commit and try to repeat it.

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