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Five Financial Planning Questions Every New Grad Needs to Ask

For recent grads, leaving school brings a newfound sense of freedom, and with it comes a desire to make their own financial choices. However, early financial mistakes in the first few years can lead to long term debts that can damage a grad’s long term financial future.

So as new graduates go off in to the world, it’s important that they ask themselves these five questions.

1. Do I Have a Budget?

One the first things a grad can do to manage their finances is to create a budget for themselves. By understanding what they can realistically spend it not only allows them to better manage their financial present, it gives them a foundation to build a stronger financial future.

Experts recommend using the 50/20/30 rule. The idea is simple; you should be applying 50 percent of your income toward essentials such as housing, transportation, food, and utilities. 20 percent of your income should be applied toward savings and paying down debt. The remaining 30 percent can be spent on things like your cell phone bill, cable, and entertainment.

If you find that your current spending habits are out of sync with this rule, it may be an indication that you should find ways to cut back or adjust your lifestyle to fit your budget.

2. Can I Pay Off My Debts Today?

With student loan debt at record levels and high levels of credit card debt, one of the best things that new grads can do is start paying down their debts now and avoiding debts in the future.

The easiest way to do this is to avoid getting into debt in the first place. Using credit cards judiciously and working within a set budget that incorporates debt repayment is a good place to start.

Also, while it’s tempting to only pay the monthly minimums on your credit cards, you will quickly find that interest and fees add up. Instead, commit a certain amount of your monthly budget toward your debts and stick with it. You’ll find your balances are much more manageable, and you’ll be able to pay down your debts sooner.

3. Do I Have an Emergency Fund?

Too many grads don’t feel that it’s necessary to save for a rainy day. Then when they are faced with an emergency, such as unforeseen medical expenses or auto repairs, they often are forced to reach for their credit card. Once that happens, they can easily lose money every month in interest and fees.

Instead, build an emergency fund. It’s easy to get an extra savings account added for this purpose. Even if you are able to put away $50 or $100 each month, that can quickly add up to hundreds, or even thousands of dollars that you can apply toward emergencies. In the meanwhile, the money you set aside is earning interest. Want to make it extra easy? Set up an automatic transfer every month and watch your savings grow.

4. Should I Worry About Retirement?

For new grads, retirement may seem a long way away, but it’s never too early to start saving for the future. If your employer offers a 401(k) or a Roth 401(k) with matching, it’s a good idea to take advantage of it. Not only are you building your nest egg, but your employer is also contributing toward your future.

Even if you aren’t employed, or if your employer doesn’t offer a retirement plan you can still take advantage of a Roth IRA. These are individual retirement plans that let you invest a certain amount each year. Not sure why starting now is so important?

If you were to invest $5,500/year from age 22 to age 30, you would have an account with $1 million for your retirement years. If you invested the same amount each year but waited until your 30s to start, your account might only be worth half as much.

5. Get an Expert Opinion

Another way to start your future off right is to talk with a Certified Credit Counselor. They can help you to organize your finances and make smarter choices when it comes to paying your debts in the future.

Want to learn more? Schedule a free counseling session today or call us at 800-920-2262.

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