3 Tips for Post-Grads – a Path to Monetary Success
By Brett Sifling
This month marked my first official year into adulting. I thought I’d take this time, while my fellow millennials are graduating, to reflect on what I wish I would have known one year ago. As you dive into adulthood, you may be starting a new career, traveling, moving to a new city--all very exciting and scary life events. However, if you follow these three tips during your transition, you can set yourself up for a lifetime of monetary success.
Create a Budget
First thing is first, you need to live within your means and create a healthy budget for yourself. Tracking your income and expenses is very important to create a systematic savings plan. When moving to a new city and looking for a place to rent, you should aim to stay below 30% of your gross income. That means if you have a $60,000 salary, you should be spending no more than $1,500 on housing expenses (rent, utilities, etc.). With housing costs soaring in major cities like Los Angeles and San Francisco, this can usually only be obtained by splitting a place with a few roommates. Try to keep your transportation costs under 10% of your net income. Looking at that same $60,000 salary and a 25% tax bracket, this will likely be around $375 a month. Lastly, make sure your debt payments are under 10% of your net income as well.
Look at refinancing those student loans. I’ve met with a lot of young professionals that are being crushed by outrageous interest rates on their student loans. Rates have been on the rise recently, so good loan terms are increasingly harder to come by. Shaving off a few hundred dollars in interest every month can be vital in the early stages of your career. There are also many programs for reducing your monthly payments (income-based repayment) or forgiving your student loan debt, especially if you are in the field of public service.
Core Investment Accounts
Establish your core investment accounts and start building your asset base. You should be aiming to save about 10% of your gross income per month. One common myth I hear is putting all extra savings towards student loans is best for you. However, depending on your interest rates, there are still ways to pay off your student loans while simultaneously building an asset base for the future. The two core accounts I recommend most often are a Roth IRA and a liquid investment account. If you are in a career field with high-flying salaries, you probably want to start a Roth IRA while you still can. Once you start making over $120,000 a year, your contribution limit is reduced and over $130,000 you cannot contribute at all. You will need a liquid (non-retirement) account for bigger life-purchases, such as a house. Starting this as early as possible and contributing to it every month will allow your money to grow a lot quicker, rather than sitting in the bank or under your mattress.
I hope you gained some insight from this article and wish you the best of luck in this next journey of your life. My firm is unique, we assist a lot of young professionals and have no account minimums. If you need to create a financial plan, I am here to help! Please reach out and give me a call.