5 Steps to Financial Success For New College Graduates
By Kyle Clark
As graduation gets closer for most college seniors, the pressures of finding a job and figuring out the next steps can be extremely stressful. Many students are trying to figure out how they are going to survive financially now that they are starting their journey towards financial success. This journey can be very intimidating and even a scary thing to begin, especially after focusing most of their lives on going to school. I remember when I was approaching graduation, one question that was always in the back of my mind was, "will I be financially successful?"
I can imagine that many others nearing that walk across the stage also have this question. With that in mind, here are some actionable steps you can start today to be better prepared and on your way to financial success.
Step 1. Creating a Budget
Before anyone figures out where they want to be in the future financially, they need to take a personal inventory on their current financial situation. Tracking what you spend every month is critical to anyone looking to get ahead.
The easiest way to create a budget is to write down all your monthly expenses and find the total amount. These categories below are the main items a new graduate should be budgeting for and thinking about:
• Renters Insurance
• Loan/Lease Payment
• Repairs/ Maintenance
• Cell Phone
• Dining Out
• Gym / Wellness
• Any Other Expense
After you have a solid understanding of your expenses, the next part of the budget is to subtract your monthly expenses from your net income. For some, the difference will be negative; and for others, it will be positive. It is generally easier to cut unnecessary, miscellaneous costs than increasing your income.
If you find that creating this budget is difficult, or you are not sure where to start, then please reach out to me! I am more than happy to send you a budget sheet and help you create a plan. As an advisor, I can help with keeping you accountable and staying on track with your financial plan.
Step 2. Pay Yourself First
Once you begin to have money left over at the end of every month, the goal is to pay that amount to yourself before paying any other expenses. Pay yourself first by taking the surplus of money and putting it into a high yielding savings account, or better yet, an investment account that puts your money to work for you.
The purpose of paying yourself first is a psychological technique that gives you a higher likelihood of you saving for your future financial goals and reduces the temptation to spend that money. By implementing this concept of paying yourself first, you will find that it is challenging at first because of how this concept re-wires the way we generally think about our money. However, the sooner you set up this system and start implementing this concept of paying yourself first, you will find that your savings and investment accounts will grow faster. You will also find that you will no longer be wonder where your money went at the end of the month.
Step 3. Learn to Live Off the Rest
Since you have been paying yourself first, you can now pay off the fixed expenses you have with the rest of the money you have earned. With only using the money you have leftover, after saving, you will find that the stress of figuring out how much to save is no longer present.
You can now focus on using the rest of the money you earned to pay rent, groceries, and other miscellaneous items. When you live off the rest, you will come to find that your miscellaneous expenses in your budget don't get out of hand because you are only able to spend the money you have available in your checking account. Utilizing this system that will automize your expense payments and make sure you are living within your means.
Step 4. Don't Change Your Lifestyle
As your income increases with bonuses or salary increases, it is important not to change your current lifestyle and expenses drastically. A common tendency people have is that once they see more income through bonuses or pay raises, then typically are more likely to spend more. By spending more, you are increasing your monthly expenses and not necessarily increase your savings amount.
If your expenses stay the same each month but your income increases, you will find that you can save more at the end of every month. For many people, this is arguably the hardest step to follow because of how easy it is to spend more when you see a more substantial amount of money in your checking account. However, this will help grow your accounts much faster and put you on a quicker track to financial success.
If you find this to be a challenge, repeat steps 1-3 to reduce the temptation to spend that additional money. If you find this to be a challenge, repeat steps 1-3 to reduce the temptation to spend that additional money. Create a budget with your new income, pay yourself first, and learn to live off the rest.
5. Stay Focused on the Goal
None of these things can be successful if you don't have the discipline to stick to these steps. You owe it to yourself to start this process in preparing for your future, and it's not anyone else's responsibility but yours. Start today by using each of these steps. There should be no reason why you can't take some form of these steps today and apply them to your everyday habits.
I often make the analogy that your financial success is very much like living a healthy lifestyle; at first, it may seem difficult because you're doing new things. But, as you continue with eating right and working out, you find it becomes easier. Preparing for your financial future is not anything different. It may be tough to put that money into an investment account, or savings account first before paying your bills. However, as your account gets significantly substantial and you begin to see your money grow, it will become easier over time. These are the techniques I wish I had implemented earlier in my own life; however, I can tell you that I am certainly glad I am doing these steps now.
Regardless of what degree you graduated with, if you follow and implement these steps consistently, you will be able to accomplish your financial goals a lot faster than expected. More importantly, you will be able to achieve financial success.
Kyle Clark is a Financial Advisor of Santa Monica, Calif-based Gerber Kawasaki Inc., an SEC-registered investment firm with approximately $1billion in assets under management as of 03/02/20. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures success or protects against loss. Readers shouldn't buy any investment without doing their research to determine if the investments are suitable for their situation. “All investments involve risk and one should consult a financial advisor before making any investments. Past performance is not indicative of future results.”