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Top 5 Financial Steps to Success for New Graduates
Young adults or those that just graduated from high school or college are probably wondering how to get off on the right foot financially. At a young age, you have a tremendous opportunity to start building wealth early - but falling into financial traps can seriously hinder your progress. Here are the top five steps new graduates and young adults should be taking with their finances.
1. Know where you are in the FOO.
The Financial Order of Operations can help get your finances in order and determine what to do with your next dollar, which isn’t always an easy thing to do as a freshly minted graduate. Should you be building an emergency fund or investing? Where do you invest? What about those student loans? The FOO will help you prioritize each dollar you earn so you can maximize your financial opportunity.
2. Don’t live above your means.
It is very tempting to live above your means right after college or high school. Your income has probably significantly increased, or will in the coming years, and there are plenty of financial temptations lurking in the shadows. Make investing for retirement a priority and know what you can and can’t afford. It’s okay if you can’t go on the nicest vacations or drive your dream car right now. This is the beginning of your journey to inevitable wealth. Do not prematurely celebrate and reward yourself with the trappings of success (fancy cars and housing). There is too much to accomplish to fall for the “fake it until you make it” trap.
3. Make a plan for paying off your student loans.
If you graduated college with student loan debt, develop a plan of attack for paying off that debt. If it is low-interest (under 6% in your 20s, 5% in your 30s, or 4% in your 40s), it falls into Step 9 of the Financial Order of Operations; if it is high-interest debt, or above those levels, it falls into Step 3. . Make sure you take the time to separate your student loans into the appropriate category. Avoiding this important step could be a hindrance to your long-term financial success. If paid off low interest debt early; those dollars might have been able to work harder for you if invested or protect you from the chaos of not having a fully funded emergency reserves
4. Start investing now, even if it’s just a little.
You can make up for lost time if you wait years to start investing, but you will make it much easier on yourself if you start now. Start putting away money for retirement as soon as you can after graduating, if you haven’t been contributing to your retirement accounts already. You can start small with amounts you barely notice and gradually increase contributions over time. Generally, getting your employer match is the first place you will invest; next, or if you don’t have an employer match, contribute to a Roth IRA and HSA; after those accounts are maximized, go back and maximize your employer plan; and later, start contributing to a taxable brokerage account.
5. Make a 5-year and 10-year financial plan.
What financial goals do you have and where do you see yourself in the future? Write down your future goals and plans and stratify them into short-term, mid-term, and long-term goals. This will turn the goals from dreams into an actionable plan. A few goals to prime the goal planning pump include: When do you want to buy a house or a new car? What are your career goals? How much do you want to make and invest each year?
Check out some of our top resources, shows, and articles for young adults and new graduates below!
Resources for Grads
In our eyes, you’re considered a young saver until the age of 35 - and for good reason. Your wealth multiplier is double digits all throughout your 20s and early 30s. Download this resource to see what each dollar invested could become by age 65, along with what you need to invest each month to reach $1 million and $2 million by retirement.
We get it - who wants to start tracking their net worth right after graduating? You may have student loans and no real income yet. But if you start tracking your net worth now, when it’s low or even negative, you’ll be able to see just how far you’ve come in the future. If you like our basic net worth template, you’ll love our Net Worth Tool, which features a home dashboard tracking your most important net worth metrics.
Our foundational course is perfect for someone who just graduated and is about to enter the workforce. Knowing exactly what to do with your next dollar can help not only your investment accounts tremendously, but help you avoid financial mistakes.
Shows for Grads
The 10 shocking stats we share in this episode will make you think about money differently - like a financial mutant. We cover what decisions are actually derailing your finances, wealth-building steps that most people miss, how powerful your dollars are when you are young, and common misconceptions about millionaires.
Throughout every decade, there are different areas of your financial life that come in and out of focus. Watch the beginning of this episode to see exactly what you should be focusing on when you are younger, when it comes to investing, tax planning, estate planning, risk management, and more.
This “best-of” episode compiles out top money advice for those in their 20s, including how to start building wealth, average account balances in your 20s, and how to become a millionaire.
Articles for Grads
Budgeting is an essential step in your wealth-building journey, especially starting out. This guide lays down some ground rules, including how to start a budget, how much you should spend, and tips and tricks to help you maximize your income while you may not be making very much.
Chances are you’ll be buying a car at some point in your 20s, and if you don’t have a high income or a lot of cash, you may need to take out an auto loan. This article is jam-packed with our car-buying rules, a table showing how much car you can afford, and a calculator to help determine what car is right for you.
These articles may not be applicable to college graduates, but are relevant to anyone graduating high school, starting college soon, or relatives of soon-to-be college students. Our guide to paying for college includes some out-of-the-box ideas you may not have thought of, and our FAFSA article breaks down a difficult-to-understand topic in simple terms anyone can understand.
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