6 Tips for Getting Your Adult Financial Life Together
Now that you’ve graduated college and entered what most will call “the real world,” it’s time to start working on your financial life. For many, this is a big step and can be very overwhelming, but it doesn’t have to be. If you take a deep breath and break down your financial life into small chunks, then getting your financial life together will seem easy and manageable. Follow these six steps to get on the right track.
1. Establish financial goals.
As the saying goes: "If you fail to plan then you are planning to fail." As cliché as that may sound, it is important to realize that the first step of establishing your financial goals is the most important step to take—especially when attempting to get your financial life together after college.
Start by separating your goals into three buckets: short-term goals (between 0-3 years), mid-term goals (between 3-7 years) and long-term goals (7+ years). Once you have identified which goals fall under each category, map out a plan of action that will help you achieve each financial goal within the given timeframe. It is also a good idea to make each goal a S.M.A.R.T. goal—Not SMART as in intelligent but S.M.A.R.T. as in Specific, Measurable, Achievable, Realistic, and Timely. This will help you organize your financial goals into bite size chunks that are digestible and doable.
2. Build an emergency fund.
Building an emergency fund is one of those necessities you don't realize you need until you need it. It's sort of like car insurance; you drive your car every day with the hope that you never get into an accident, but if ever you do, you need a system in place that will help!
An emergency fund is just that—preparation for the unexpected that will make you whole again. Emergencies can be the loss of a job, significant medical expenses, home or auto repairs, or any other situations that disrupts the flow of your life. An emergency fund should be between three and six months worth of your monthly expenses. This figure gives you enough lead-time to get back on your feet if needed.
Start small by saving at least 10% of your income with a goal of saving one month of expenses. Once you you do, increase your goal to two months and so forth. But remember, you must pay yourself first! This means that before you pay your bills, buy groceries, or anything else vital before setting aside a portion of your income to save. In essence, the first bill you should be paying each month is to YOU!
3. Create a monthly spending plan.
Now that you know your financial goals are and have a process in place that will help you build your emergency fund, it is time to create a monthly spending plan. This will help dictate where your money should go.
To begin, separate your needs from wants. Your needs can be fixed expenses: rent, utilities, food, clothing, transportation, taxes, health care, childcare, and (possible) home repairs. Wants can include entertainment, cable, Internet service, magazine subscriptions, eating out, hobbies, and cell phone bills. Once you identify your expenses, start by paying yourself first (as discussed in step 2), then create a system where you are paying all of your needs/expenses in a timely manner. Make them automatic if you can. Your wants should be included in your budget, but make sure you are keeping track of everything you spend to assure you are not veering from your plan.
4. Start banking on your future.
Banking and the future have more in common than people know. Whether it's starting up a savings account or contributing to your employer's retirement plan, an individual retirement account, or stocks and bonds, where you put your money and how you allow it to work for you will help you get your financial life in order.
You must start by choosing the right bank—ideally not a bank that will bombard you with unnecessary fees, but a bank that cares about your bottom line, is convenient, and can help empower you financially. Interest rates should be competitive and you should have a wide network of ATMs available for free. Your online transactions should be secure and you shouldn't have to worry about a minimum balance.
5. Stay on top of student loan obligations.
"I love student loans," said no one ever! Regardless of how much you despise your student loans, it is imperative you stay on top of them to avoid getting into financial trouble. Student loans can really have a negative effect on your financial life if you don’t manage them properly—not only will they affect your credit by showing up as a derogatory account on your credit report, but in some cases your paycheck can be garnished and bank account levied.
Make sure you are, at least, paying the minimums. If your current financial situation doesn't permit this, speak to your lender about a deferment or forbearance so your loans stay in good standing.
6. Use credit wisely.
Lastly, using credit wisely will only help your financial situation. Good credit can help you rent an apartment or buy a home. It can allow you to finance a car, save money on insurance, or even help get a job (in some states employers check credit before making job offers).
The first step in using credit wisely is to understand that credit is not free money and should not be used for everyday purchases. It should be use for emergencies. Also, it is important to check your credit report at least once a year to make sure what is on your credit report is accurate. Visit www.AnnualCreditReport.com for your free credit report from all three credit bureaus (Transunion, Experian, and Exquifax).
Graduating college may signify an end to your collegiate era and the beginning of "the real world," and this beginning shouldn't be daunting. Implement these steps and you will see that the real world can be fun and enjoyable, especially when you manage your financial life well too!