As students progress through college, often their mindset shifts from “broke college student” to “young professional.” And their questions shift from “how do I afford pizza next Friday night” to “how am I going to save for retirement?”
A financial plan is a sensitive and individualized thing. Different people look at finances differently, and that is okay. This post is a summary of some of the most important considerations to have when discussing your financial plan with a mentor, advisor, planner, or parent.
- Emergency Fund: Fast-forward a few years to when you are working, maybe pulling in $4,000 per month, getting your loans paid off, taking care of other expenses, saving for a down-payment, and enjoying life. But then something unexpected happens and you find yourself unable to work for a few weeks or months. What do you do? Having an emergency fund equipped to cover 3-6 months of expenses is vital to building a sound financial plan because it protects you (and your other savings) from unexpected events.
- Retirement: This means different things to different people, but for almost everyone it is a larger number than they expect, and saving/investing towards this goal can be daunting. Set healthy savings habits and goals now, and find out what you need to save each year to make your dreams happen.
- Budget: Based on your income, subtract out taxes. Then divide this income by 12 to know your monthly after-tax income. From this, start categorizing expenses as either fixed or discretionary (discretionary means optional or “for fun”), budget your savings and investments, use some of the left over for “fun” money, and then boost your savings with anything left after that. The most important part of a financial plan is the plan; a mediocre financial plan is worlds better than no plan.
- Other goals: Take time to think about and write down your goals. Maybe you want to have a house by the time you are 27; perhaps a car you will want to buy before the age of 30; maybe a dream vacation 10 years after you graduate or once your student loans are paid off. Whatever these goals are, write them down. Prioritize them. Put a price tag on them. Figure out a strategy to start moving towards them. Even if your goals change later, you will look back on your earlier self and thank yourself for saving the way you did.
Finances are difficult, and financial planning can be complicated. Thankfully, there are endless resources for people like you and me. Start with the basics, and try to cover all your bases. Being one step ahead can make all the difference in the world.