How Young People Can Start Their Finances On The Right Foot
College students often graduate and get their first full-time job without knowing the basics of managing their finances. This can lead to poor financial decisions. Workers Credit Union Assistant Vice President and Area Manager, James Monette, teaches financial literacy classes at Mount Wachusett Community College, Fitchburg University, Assumption College, and high schools in the area to respond to the need for financial curriculum in schools. Here are some tips from Monette that can help young people start their financial journey on a positive note.
- Be practical: While you may be able to afford a higher car payment with your first job, do you really need the most expensive car? It is important to differentiate between wants and needs and be practical with big purchases. Young people often fall victim to thinking they need the newest, brand name thing. Instead, do not assume that the more expensive thing works the best or is the best investment. Focus on function and in return, you may find yourself saving a lot of money.
- Pay yourself first: Treat yourself like a bill and pay yourself first by saving money with each paycheck. Especially when you are first starting out, having a rainy-day fund is important because it provides a safety net for emergencies. You do not have to be rich to save money, in fact, saving a little each month is all you need to do. Over time, your goal should be to save 20% of your salary.
- Create a budget: College loans may seem overwhelming. By creating a budget and plan for paying down loans, you’ll reach small victories and make progress. Workers Way certified financial coaches can help recent graduates create reasonable budgets that will help keep down nerves when it comes to student loans.
- Understand how credit works: One of the biggest mistakes students make is opening credit cards that they do not have the money to pay back. It is best to open one credit card instead of multiple cards. With multiple cards, it is easy to get into financial trouble because it is more credit to manage. You should be able to pay off credit cards at the end of each month. If you spend money on your credit cards that you can pay back, they can help you build credit and are basically an interest free loan. Without having the money to pay your monthly bill, interest gets added to your balance and you have to pay more for the things you bought. For example, if you buy something on sale but do not pay it back in the same month, it is not really on sale.
- Save for retirement early: As soon as you are able to save for retirement, you should. Your first job out of college is a great time to start. If your employer offers a 401k plan, enroll as soon as you can. Your employer may even match retirement contributions or a percentage of them. The earlier you start, the better off you will be because of compounding interest that adds up over time. Interest makes money on interest, and a quick way to see how retirement savings can double over time is by using the “Rule of 72.” When you divide 72 by the fixed rate of return in your savings account, it will give you an estimate of how long it will take for your money to double in the account. So, start as early as possible and see if your job has any retirement savings benefits.
Finances may seem daunting, especially for new college graduates with a sudden influx of money. It’s important to remember that with little victories come high rewards, and being practical, paying yourself first, creating a budget, using credit wisely and saving for retirement early, can help get your finances in order. Workers Credit Union has many resources including certified Workers Way financial coaches who can help.
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