Six Personal Finance Things Every College Graduate Should Be Able To Do
Money. It’s something most college students have very little of, and something we dream of having more of. We live in a society that often gives mixed messages about how we should view and use money, but the truth is quite simple. Putting the truth into practice – well, that may be a different story. Here are six basic steps that will put you on the path to success in your personal finances.
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- Keep your finances in perspective.
Money is a tool, not a goal. The accumulation of much wealth will be meaningless if that is an end in itself. Money is only of value on account of the things that it can accomplish, so don’t let your quest for money distract you from the things that really matter to you or lead you to compromise on the core values that define you as a person. - Prepare – and follow – a written budget.
If money is to be your tool, you must tell every dollar where to go. As financial guru Dave Ramsey would say, “Give every dollar a name.” Plan out how you are going to use all of the money that you earn. Many people do this on a monthly basis; since I have a steady job, I plan my overall budget on an annual basis and then break it down on a monthly level. I use an Excel spreadsheet to track my budget, but other programs are available. Dave Ramsey launched a free computer and mobile budgeting program called EveryDollar which has been very well received. Remember: there is no shame in saying “no” because something is not in your budget for the month; that is a sign of the kind of self-discipline that will make you a life-long master of your money. - Get rid of your debt as fast as possible.
Another critical step toward becoming master of your money is getting rid of debt. Regardless of cash back bonuses, air miles, low interest rates, or any other benefits that credit card companies offer, the fact remains that “the borrower is slave to the lender” (Proverbs 22:7). Make a plan for getting out of debt as fast as possible, and stick to your plan. It doesn’t take a mathematician to realize that paying off the debt with the highest interest rate first minimizes total payments. However, many financial advisors do not recommend that strategy because of the psychological boost that comes from paying off the smallest dollar-value debt first. Once that is paid off, focus on the next debt and keep repeating the process until every debt is gone.At some point in the future, most of us will buy a home. With the cost of homes today, that is difficult to do without taking on debt. Save up for the biggest down payment you can manage, take a 15-year fixed-rate mortgage, and pay it off as quickly as you can. - Build up an “emergency fund.”
Start with $1,000 and move up to 3-6 months worth of expenses that you keep in a separate account reserved for emergencies – your car breaks down, you break a leg, you lose your job. This cushion gives you peace of mind as well as the flexibility to roll with whatever comes your way. - Save for retirement.
Retirement may seem like a long way off, but the power of compound interest makes it critical to start saving sooner rather than later. Once you have dealt with your debt, start saving 15% of your income for retirement. There are many different vehicles for investment available, so it is important to choose wisely. Roth IRAs can be a very good choice, since the money you put in grows tax-free and can be withdrawn tax-free once you reach a certain age. A 401(k) at work is also a great option. If your employer offers a 401(k) match, take advantage of that! It’s the closest you will get to free money for retirement savings. Those, along with traditional IRAs and – for the self-employed – SEP plans, are the basic options for retirement savings. Under those umbrellas, there are many investment options for your money.Diversification is key for financial success. Make sure that your money is invested in several different types of mutual funds that all have solid track records. Vanguard offers some quality mutual funds that have low advisory fees and are a great place to start. Growth, growth & income, aggressive growth, and international are the four categories among which Dave Ramsey recommends dividing your money. - Give back.
If you live in America, you have more than most people on this planet. Your teachers and professors, not to mention family and friends, have invested countless hours in your life. You have received much, so don’t be stingy with what you have. Living generously doesn’t have to involve money, either. Each of us has unique skills and interests that are valuable to any number of charitable organizations. Find a worthy cause with which to share your time and money right now, and as you gain more solid financial footing, let the amount that you give grow, too.If all of that sounded like very simple advice or like echoes of Dave Ramsey’s nightly radio show, that is probably because it is both of the above. Managing money well does not have to be complicated, but it does require discipline. It is a life-long journey that we are all on, so don’t be afraid to seek advice or encouragement along the way.
Margaret Freeland ‘14 graduated from Hillsdale summa cum laude with a B.A. in accounting and German. She was also the valedictorian of her class. After graduation, she completed the CPA Exam, becoming one of only sixty exam candidates nationwide to earn the prestigious Elijah Watt Sells Award. She is currently employed in the tax division at Moss Adams LLP in the Puget Sound region of Washington State. Her main areas of interest are tax issues for individuals, trusts, and family-owned businesses. When she is not in the office, she enjoys cooking, hiking, and serving with her local church.