Graduation, What Next?

As the sound of Pomp and Circumstance runs a constant loop in your head this graduation season, there is plenty to think about. What next? With student loans, monthly living expenses and the grind of a new job, how do you begin to plan your financial future?

Here are the top 10 tips from Cary Yates, Wells Fargo market growth & development manager for recent graduates starting their careers:

1. Live below your means. If you can maintain a frugal college student mindset the first two or three years after you get your first job, you will be amazed at how much you can save and invest. The more that you invest now, the more you will benefit from your long-term investment time-horizon to grow those assets. Setup a budget – know what you can afford and what you can’t. Be realistic – you are not entitled to anything and everything you want.
2. Set money aside for emergencies. Set up a separate bank account for this purpose. Try to accumulate enough money to cover three to six months of basic living expenses. Although it may not feel like it, surprisingly it is easier to accumulate this cushion now when you have fewer financial commitments than any other time in your life. Speaking of emergencies, sign up for employee offered disability insurance.
3. Start retirement savings with your first paycheck. Retirement may be the last thing on your mind as you start your first job, but if you don’t take advantage of your company’s savings plan, you may be giving up an opportunity for free money. Most companies offer 401(k) plans that offer some level of matching contributions. At a minimum, you want to capture the full matching amount. Starting to save early can help you benefit from the power of compounding—where over time the interest you earn on your investment helps it to grow at an accelerated rate. Save at least 10% of your income or more! Do what it takes to save as much as possible, even if that means living with mom and dad or riding your bike to work.
4. Create separate savings accounts for large purchases. Never, ever withdraw money from an investment account for a purchase of a consumer product.
5. Keep credit card balances low in relation to overall credit availability and your ability to pay it off in full. Debt is easy to get out of hand. Understand your credit score and how credit works.
6. Borrow prudently. Take out a loan only for purchases that will likely appreciate over time. Avoid borrowing for items such as clothes or furniture, which lose value before the first payment is made.
7. Be a smart car shopper. Before you buy a car, consider issues such as its resale value and the total cost of ownership. Carefully consider whether buying a new car that depreciates the moment you drive it off the lot is the right financial move for you. You will often find that a car that is a year or two old with low miles and lots of warranty coverage remaining offers better value than buying a new car.
8. Reward yourself with one modest purchase. Getting that first full-time job is cause for celebration. Treat yourself; just don’t go overboard.
9. Use rare “in the money” moments, such as tax refunds, bonuses and raises as well as holiday gifts to get started with investing. Through the power of compounded interest, systematically applying discretionary income can ramp up the success of a financial plan. While investments typically have some measure of risk, it’s important first-time investors understand their tolerances for fluctuation. Talk with a financial advisor or go online for easy investing tools like this through WellsTrade.
10. Consider talking to a financial advisor or financial planning. Both of these professionals can help you put together a basic financial plan that can become your financial road map for the next several years.

Cary Yates is the market growth & development manager for Wells Fargo in Houston.