What is financial literacy? Financial literacy is often defined as the ability to understand financial concepts and how they pertain to one’s own financial situation. While there is no better time than the present to improve financial literacy, starting earlier is better. The transition from college to the working world is a great time to learn about financial literacy and take an inventory of finances. Financial choices, both positive and negative, made after graduating can have a long-lasting impact, so being mindful and educated is critical. While there are many areas to look at, we’ll focus on 4–budgeting, reviewing income, debt, and investing.
Budgeting
Budgeting is an ongoing process. A good place to start is by choosing a budget tracker. Many budget trackers will allow you to link bank accounts and credit cards to feed in income and expenses. This can give you a summary of income coming in and expenses going out, automating the process. Start with listing fixed expenses and then move to variable expenses. It can be helpful to give variable expenses, like food and entertainment, dollar amount ranges. Budgets can be fluid and may change throughout the year.
Review your monthly income
The income transition from college to working can be a big one, especially for students who didn’t work throughout college or experience a large income jump after college. Mapping out expected income can be helpful, for both recent grads with regular paychecks in addition to those with variable pay (maybe paid as contractors via 1099s.) For recent grads receiving regular paychecks, it’s important to understand the net paycheck amount as well as withholdings for taxes, benefits, and any retirement plan contributions. For those with variable pay, it’s helpful to project out future pay as well as understand any necessary taxes that need to be set aside and paid to the IRS.
Debt
It’s a myth that all student loans are bad. Student loans can be a powerful way to enhance a student’s future. With this said, it’s crucial for students to understand loan types, minimum payments, repayment terms, and interest rates.
Understanding debt and the role it plays in a recent graduate’s life is critical. Certain types of debt can be detrimental, including credit card debt which can have significant interest rates. Seeking guidance from an advisor can be beneficial for a recent grad looking to balance paying off debt with achieving other financial goals.
Investing
The earlier a recent grad starts investing, the longer the money has to grow. By starting early, grads can contribute less over time and still retire with more money than if he or she had begun later in life. Starting with a company sponsored retirement plan like a 401k, 403b, 457, etc. can be a great place to start, especially if there’s an employer match or contribution. If there’s no company sponsored retirement plan, Roth IRAs and Traditional IRAs can be a great starting place. Reach out to a financial advisor to see what makes the most sense.
College graduates are often faced with many changes–changes in income, expenses, and debt obligations to name a few. Learning about these changes and getting organized is a great starting place. With this said, there’s no need to learn and make decisions alone. Reaching out to a financial advisor is a great starting place! Give us a call to get the ball rolling.
Important Disclosures
Moneco Advisors is a registered investment adviser. This is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Moneco Advisors and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Moneco Advisors unless a client service agreement is in place. This commentary reflects the personal opinions, viewpoints and analyses of the Moneco Advisors employees providing such comments, and should not be regarded as a description of advisory services provided by Moneco Advisors or performance returns of any Moneco Advisors client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Moneco Advisors manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in this presentation.