Financial Planning
June 27, 2022

Finances for the Post - Graduate

Financial planning for the real world
Stewart Willis
Co-Founder & Co-Owner Asset Preservation Tax & Retirement

Walking across the stage to receive your diploma is a rite of passage for many young adults. As soon as you graduate, it’s time to get a job. Many young adults are ready to start their careers, but they might not be quite as ready to manage their finances. New workers must learn to handle not only their new jobs but also manage their benefits and keep up with their student loan payments. If you’re a recent college grad, these tips for financial success can help you now and in the future.

Start Early

The sooner you start planning for your financial future, the better. It could make a big difference in the amount of money you have when you reach retirement age. Once you get your first job out of college, take advantage of the employer-sponsored retirement account or401(k) plan. If they offer a match on investing, make sure you take it. The earlier you start, the more money you will have generated when you reach retirement.

When you’re young with a lower income, you may be in the 12% tax bracket. If your employer offers a Roth 401(k) option, you contribute money, pay 12% tax today and have it grown tax-free for the next 30 or 40 years. You’ll get that same tax benefit by opening a Roth Individual Retirement Account. Try to put aside $300 a month into it. Think of that as a monthly car payment, set it aside and forget it. In addition to the tax benefits of starting a Roth IRA right out of college, you are taking full advantage of the snowballing effect of compound interest. The earlier you start, the more money you will have generated when you reach retirement.

Don’t Default

If you are struggling to make monthly payments on your student loans, the last thing you want to do is default on them. Missing just one payment can cause your loans to go into default. Defaulting can have many negative impacts on your finances overall. It could lead to anything from negatively impacting your credit score to having your tax refunds withheld or a portion of your wages taken out to repay a defaulted loan.

If you feel like you are at risk of defaulting on your student loans, there are some steps you can take. Try switching to an income-based repayment plan. This option restructures your payment based on your monthly income to a hopefully more manageable amount. Another option that's a little less popular is to move back with your parents for a few months. This move can help you pay off debt faster by hopefully eliminating a few bills. A short-term sacrifice for a couple of months could set you up for a lifetime of financial freedom.

Prioritize Budgeting

Budgeting may have been something you relied on your parents for, but graduation is the perfect time for you to take control of your finances. Get into the habit of budgeting. Know how much money you have coming in every month and figure out exactly where it all goes. The goal with budgeting is to make sure more money is coming in than is going out. If you want to adopt a simple budgeting plan, follow the 80/20 savings rule. 80% of your monthly finances should go towards your bills and any fun money you want to spend. The remaining 20% should go towards your future finances, including savings and investments. A great way to learn more about your finances is to find a financial expert who can help you. You want to learn how to save, spend and invest your income while still paying down your student loans. No matter what stage of life you or your finances are in, at Asset Preservation Wealth & Tax, we help our clients find the right plan for them.

Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

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