Another graduation season has passed us, and we have a fresh crop of newly minted graduates. In this article, we will discuss the task and skills you should consider teaching the new graduate to set them up for a better financial future. This blog post will apply to both High School and College graduates.
Teach them to create a budget and stick with it
Understanding how to create and manage a budget is a skill set that will benefit your graduate the rest of their life. The simple knowledge of where their money is going and how much income is coming in can significantly reduce future financial stress. Below are the skill sets you need to teach your graduate.
Estimating future income – The first line on every budget is income. Your graduate understanding how much they make on an hourly basis is one thing, but what does that equate to on a monthly or yearly basis? How do taxes affect their take-home pay? Are they making the most they can make given their current skill sets and passions? For example, if you have a college degree and love mathematics what occupations can pay you the most money? These questions should be answered and reviewed on a quarterly basis. Teaching your graduate to assess their income in a healthy way can be a lesson that lasts a lifetime.
Understand current expenses – I been around individuals who are in their late 40s who still don’t have a grasp on where their money is going. This could have been alleviated if they had a person like you when they were younger. For your new graduate, getting a handle on their expenses early in their life can be a game changer. I recommend listing out their expenses by taking out a sheet of paper or creating a spreadsheet. This is called a budget. After they have created a budget, on a monthly basis reconcile the created budget to what they spent. (A digital alternative is using apps like mint.com)
Keep a low standard of living – Lifestyle creep is a big issue when you begin to earn a steady paycheck. The goal should be to teach your graduate how to have fun in a way that does not cost a lot of money. That high-end new restaurant sounds like a good time, but it can put a hole in your pocket. Alternatives, like hosting a potluck dinner with friends or having a movie night can be a cheaper alternative and just as fun. Also, don’t forget that your local municipalities often sponsor events for the community that are usually free. This can be a great way to meet the neighbors in your city.
Steer clear of future debt and manage the debt you have
I have seen far too often how mismanagement of debt has slowed down an individual’s progress. Whether that is purchasing as home, starting a family, or starting a new business. To help your graduate manage their debt, I recommend they take these steps.
Review credit reports – So many people I meet don’t know how much they owe. The best way to obtain this information is by pulling your credit report. A credit report will tell you the debts the credit bureaus claim you have accumulated. (Article on how to pull your credit report) Review these debts and make sure they are accurate. Mistakes can happen, especially if you have a common name.
Obtain a credit freeze – To protect your graduates’ credit in the future, consider a credit freeze. (More information on a Credit Freeze)
Have a student loan strategy – Student loans are becoming a national issue. Poor lending practices have led to individuals accumulating massive amounts of student debts. The average borrower in the college class of 2017 is expected to carry more than $38,000 in student loan debt. Don’t let your graduate fall victim to these practices. Have a plan before you borrow a dollar of student loan debt. Your graduate should know how much they will accumulate, have accumulated, and how long it will take them to pay it back.
Start investing early
Albert Einstein said, “compound interest is the eighth wonder of the world”. The most powerful factor of compound interest is time. Starting to invest early can make a humungous difference in the quality of your new graduates’ retirement and what options they have in the future.
Banking basics – The first investment should always be in yourself. Your graduate should first focus their funds on securing an emergency fund. (More Information on Emergency Fund). They should have at least two accounts: a checking account and a savings account.
ROTH IRA – If your graduate is earning income, get them to start investing with a ROTH IRA.
Take advantage of their employer’s 401k plan – Most of the high net worth clients I work with became that way just by a coworker or a mentor helping them set up their 401k plans early on in their career. Be that person for your graduate!
Keep learning
Financial Literacy is like any other subject or life skill. It is something you should spend time regularly learning about. You don’t have to spend hours every day, and you don’t have to become an expert. Whether your graduate is a do-it-yourselfer or someone who will list the help of a financial adviser, they will feel better about both options when they know the basics. After all, these are your life saving, therefore paying attention to them is the ultimate adult activity. (Hacking The System by Creating Your Own System)
Randall Avery
Financial Advisor │ Author │ Public Speaker
R.S.A. Deasil Advisors, LLC
Office: 531-333-2745
Email: Deasil@rsadeasil.com
Website: www.rsadeasil.com
P.S. If you would like me to speak at your next event, please click HERE
[sh_divider style=”shadow” shwidth=”wide” spacetop=”20px” spacebottom=”20px” totop=”disable” color=”rgba(0,0,0,0.15″][sh_divider style=”none” shwidth=”wide” spacetop=”1px” spacebottom=”1px” totop=”disable” color=”rgba(0,0,0,0.15″] [sh_columns number=”two-thirds”] [sh_column][sh_headerdouble size=”h4″]Hacking The System[/sh_headerdouble]
While working with clients, Randall realized there was a missing process that individuals were not performing when choosing to use their money. Motivated to fill this gap, Randall developed three models to ‘Hack The System’ and allow individuals to Create Your Own System (CYOS). Randall hopes effectively using these models will help individuals identify the best moral and ethical use of their money.
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