Graduated and Ready to Start your Financial Journey? Here's a Financial Checklist.
Congratulations on your graduation! Whether you’re preparing to go off to college as an undergraduate, graduate school, or starting a career, it is crucial to be mindful of your future financial foundation. Here is a checklist of seven financially conscious strategies you should consider as you start your next chapter after graduation.
1. Open a High-Yield Savings Account
While saving money is great, earning interest on your savings is better. A high-yield savings account will typically offer you a higher interest rate than a traditional savings account. A higher interest rate means the bank pays you more money to keep your funds deposited at their financial institution.
2. Create an Emergency Fund
After you’ve created a high-yield savings account, you can start building your emergency fund.
An emergency fund is an amount of money set aside for unexpected expenses, such as a health emergency, a job loss, or a family emergency. Typically, emergency funds cover 3 to 6+ months of living expenses. Therefore, if you spend $2,000 per month on living expenses, you should have $6,000 to $12,000 in your emergency fund. Though emergencies may be the last thing on your mind, it is wise to be financially prepared if they happen to you or a loved one.
3. Start Investing to Build Wealth
Once your emergency fund is funded or consistently building towards being fully funded, you may choose to start investing a portion of the leftover money from your monthly income. Investing is a great way to grow your money and build wealth.
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You may choose to invest in the stock market, employer-sponsored retirement plans such as a 401K, or self-selected retirement accounts such as a Roth IRA. Regardless of where you decide to invest, it is essential to know the difference between investing in a tax-advantaged account and a traditional taxable brokerage account.
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4. Get Rid of Your Debt (or Stay Far Away from it)
You may have little or no debt as a high school graduate. However, as a college graduate, you will likely be leaving school with student loan debt. Graduating with debt may seem like you’re starting your adult life with a heavy load of responsibilities. However, if you are serious about eliminating your debt, you should plan and prioritize your debt when creating your monthly spending plan. Eliminating your debt early in life will relieve you of financial stress and allow you to shape your financial future properly.
5. Beware of Lifestyle Inflation
Lifestyle inflation happens when a person starts spending more as they begin to earn more money. As your income increases, you may be tempted to spend more on wants versus needs. However, according to Forbes, lifestyle inflation may hurt your financial life in the long run. Those who try to elevate their lifestyle each time they see an increase in income may have difficulties keeping up with the costs of maintaining such lifestyle changes, especially if they lose their job or acquire unexpected financial responsibilities. Never be ashamed of living within your means because your future self will thank you in the long run.
6. Set Financial Boundaries
Your money is your business, and you are the only person that should decide how to manage it. Setting financial boundaries with family and friends is an essential step on your financial journey. Make it clear to those around you that you prioritize your financial goals.
7. Protect Your Money
Protect your money by securing your bank and investment accounts with strong passwords and security systems. Do not share your passwords with anyone, and if you do share your passwords, only share them with the people you trust the most. As a precautionary backup, you should also designate someone or multiple people as your beneficiaries on your financial accounts. Your beneficiaries will receive the assets or money in your accounts in the event of your death.
Are you a recent graduate? Do you know someone that just graduated or is graduating? Share this article with them so that they can jumpstart their financial future!