College into Full-time Job: Staying on Track

Congratulations, you’ve earned your degree!  From the onset of your career, it is important to have a plan for managing your finances to provide for a rewarding financial future.  But where to start?

In the transition from being a college student to entering the work force, it is crucial to get a grip on your finances early on.   Learning to manage your finances by developing beneficial saving and spending habits will reduce much of the stress many associate with money.  Don’t be afraid to ask others for advice, to learn both good habits to build and to learn from mistakes they’ve made (and are willing to admit).  Take advantage of resources to build your knowledge and take control of your finances.  A useful site is MillenialMoney.com, and a particularly useful article is “Best Money Tips for College Graduates”.

We all have a list of things on our mind once we secure that first full-time job.  It may be a new car, a vacation with friends, a down payment on a house, or a wedding.  “How will I ever be able to afford these things?  How will I ever get ahead?”  At this stage in life, it’s not necessarily coming up with a set number you want in retirement or spending to “Keep up with the Joneses”.  Most importantly, it’s having having a plan and taking the right steps, time after time, to put yourself in the best possible situation to reach your long-term financial goals.

Make it Automatic

Particularly if you’re prone to spending any money you see in your bank account, one trick is to set-up automatic transfers to fund your life’s goals.  Whether you’ve established a separate account to save for a large purchase (i.e. grad school, down payment, wedding) or want to ensure you’re saving enough for retirement, establishing automatic transfers ensures you fund those priorities without you needing to do anything after the initial set-up.  While many of us have the best intentions, we can be led astray of our longer-term goals in search of short-term satisfaction.  If the money you intend to save is set aside automatically, you’ve forced yourself into a beneficial financial habit.

Emergency Fund

This is an essential step for anyone no matter what stage of the life they are in.  The purpose of an emergency is to protect yourself in case of the unfortunate events of life such as job loss or a large unforeseen expense.  Typical recommendations are to save 3-6 months of anticipated cash flow needs, though up to 12 months may give you more peace of mind.

After establishing your emergency fund, you may want to make different mental buckets for financial goals you want to accomplish.  For example, contributing to retirement accounts and saving for a few enjoyments in life.  Some people find it useful to have physical reminders of these individual goals by stashing cash in separate, labelled containers or opening multiple bank accounts (i.e. a vacation fund).  You can even make it automatic by setting up regular transfers.  Saving and investing may not sound like the “fun” thing to do while young, but the decision will pay off in the long-run by forming good habits and the “magic” of compound interest.

Eliminate High-Interest Consumer Debt

If relevant, a useful technique to help get ahead is to pay down high-interest rate consumer debts.  This typically means credit card balances and private student loans.  By eliminating these high-interest debts, you’re saving yourself by not paying accumulated interest you’d otherwise pay in the future.  It’s both a relief and a reward.  After the weight of debt is lifted off of your shoulders, you will have more money in your pocket going forward to put towards yourself.

Pay yourself first

While building your emergency fund for the near-term, be sure you’re also taking care of your future self by paying yourself first.  If your employer matches a portion of your retirement plan (i.e. 401(k), 403(b)) contributions, taking advantage of this “free money” match is a great start to begin building your retirement savings.  Be sure to contribute at least the amount they match.  Your contributions are typically taken from each paycheck automatically, so if you begin contributing from the onset, you’ll never miss the money in your bank account.

Establish an IRA

In addition to contributing to your employer’s retirement plan, you can also save additional money for retirement (up to annual maximum limits) in an IRA.  An Individual Retirement Account (IRA) has two primary versions: Roth and Traditional.  Roth IRA contributions are made with already-taxed dollars.  Roth IRAs tend to be more beneficial for those in lower income tax brackets and younger investors with a longer time until retirement for their dollars to grow.  Traditional IRA contributions are tax-deferred, meaning you will be taxed in later years when money is distributed out of the account.  Traditional IRA contributions lower your taxable income today, but you will be taxed on any withdrawals in retirement.

Please consult with your professional advisor for specific recommendations on whether a Roth IRA or Traditional IRA would be most appropriate depending on your specific situation.

Focus on What You Can Control, Stay Persistent

As we have seen this year, it is impossible to predict how financial markets are going to perform.  We cannot control market performance, but we can control our saving/spending habits, taking advantage of opportunity, and paying attention to trading costs.  Making consistent, disciplined decisions will prove to be important as we continue through our careers.

Working With a Professional Advisor

Since 1985, PDS Planning has worked with clients to eliminate the stress often associated with planning your financial future.  With over 30 years of experience helping clients plan their investments, we’re experts at optimizing an investment plan to each individual’s highly specific needs.  We’ll work to understand your vision for the short and long-term.  And we will provide objective guidance on the proper path to help reach your goals.

To learn more about PDS Planning, please contact us.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment, strategy, or product or any non-investment related content, made reference to directly or indirectly in this newsletter, will be suitable for your individual situation, or prove successful. This material is distributed by PDS Planning, Inc. and is for information purposes only.  Although information has been obtained from and is based upon sources PDS Planning believes to be reliable, we do not guarantee its accuracy.  It is provided with the understanding that no fiduciary relationship exists because of this report.  Opinions expressed in this report are not necessarily the opinions of PDS Planning and are subject to change without notice.  PDS Planning assumes no liability for the interpretation or use of this report. Consultation with a qualified investment advisor is recommended prior to executing any investment strategy. No portion of this publication should be construed as legal or accounting advice.  If you are a client of PDS Planning, please remember to contact PDS Planning, Inc., in writing, if there are any changes in your personal/financial situation or investment objectives.  All rights reserved.