Develop a financial plan to ensure a successful future
WASHINGTON, June 20, 2018 /PRNewswire-USNewswire/ — With graduation season ending, new graduates will find themselves managing their finances on their own for the very first time. Senior CFP Board Ambassador Jill Schlesinger, CFP®, said now is the best time for grads to get ahead of their finances by creating a plan that will evolve with them.
The earlier young people create a system to manage finances, the better off they’ll be in the future, Schlesinger says. Since many may not know where to start, she shares what can be done now to keep your finances in check as you enter the ‘real world’:
Create a cash flow
Are you keeping track of money that’s coming in and going out? This will help ensure you are able to fund your various financial priorities. Check out your bank’s app – many offer a tool to help track your spending.
Build a balance sheet
Do you know what you own (assets) and what you owe (liabilities)? Assets minus liabilities equal your net worth, which for many 21-year-olds, starts with a minus sign. Don’t worry – time is on your side.
Check your credit report
Get in the habit of checking this regularly to catch potential mistakes and stay in good credit standing.
Pay down debt
Take a look at the right side of that balance sheet. Your first priority is to pay off the highest interest consumer-related loans (credit card and autos) and then systematically work your way down to the lower interest ones.
If you are among the nearly 70 percent of 2018 graduates with student debt, understand exactly what you owe. Write down each loan, its interest rate, the payment amount and note whether or not the loan is a federal or private one.
If you think it’s going to be hard to meet the payments for your federal loans, check out StudentAid.ed.gov to determine whether or not you qualify for an alternative plan, like income-based repayment, which usually results in a longer payment schedule with lower monthly payments. Conversely, if you’re earning enough money, make extra payments to accelerate your pay-off time. And, if you’re headed to graduate school, you may be able to postpone or defer your education loan payments.
Establish an emergency reserve fund
Begin setting asides funds in a safe, liquid account until you have six to 12 months of expenses saved.
Maximize retirement contributions
Try to contribute at least up to your employer’s match level (usually 5-6 percent) in your employer sponsored plan – you’ll thank yourself in the future. Yes, it’s decades away, but ask anyone older than forty about financial regrets and you will hear “I should have started to save for retirement earlier!” While very few recent graduates will earn enough money to put away the maximum of $18,500 into an employer sponsored plan this year, try to contribute at least up to the organization’s match level (usually 5-6 percent). If you have the choice between a Traditional 401(k) and a Roth 401(k), go with the Roth version. If you don’t have an employer plan available or are working freelance, fund a Roth IRA with as much money as possible, up to the $5,500 maximum.
Here’s how the math works and why starting early is so compelling: If you contribute $100/month for the next 50 years and you earn a compounded interest rate of 5 percent, when you reach age 70 there should be just over $250,000. If you start twenty years later at age 40, by the time you are 70, there would be just shy of $80,000. You can play with various calculators from the Securities and Exchange Commission, which can project how quickly your money can grow!
Read Schlesinger’s full blog post here with more details here.
ABOUT CFP BOARD
The mission of Certified Financial Planner Board of Standards, Inc. is to benefit the public by granting the CFP® certification and upholding it as the recognized standard of excellence for competent and ethical personal financial planning. The Board of Directors, in furthering CFP Board’s mission, acts on behalf of the public, CFP® professionals and other stakeholders. CFP Board owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements. CFP Board currently authorizes more than 81,000 individuals to use these marks in the U.S.