Post-College Finance Plan
So you’ve graduated and got a job. Now what? How do you begin building your post-college finance plan? Here are the first few steps to take.
Here are five starting points for your post-college finance plan.
Make an emergency fund.
An emergency fund is defined as 3-6 months’ expenses in case you lose your job. 3 months may be comfortable (junior software engineer? 3 months is probably fine for you), but for others who are looking for more mid-level and upper-level jobs, 6 months or more is better. Maybe you even want to start your own company one day, and having a 12-month emergency fund’ makes sense!
Evaluate your lifestyle and the stability your job provides, and make your best judgment call on how many months you need in the bank. There’s no harm in building up a 3-month fund, then coming back and adding more once you handle your debt.
Keep this emergency fund somewhere you won’t be tempted to spend it, but easily accessible and liquid. Not tied up anywhere. Using the asavings account is a good to start! It takes 3 days for an ACH transfer to clear, so you will have three days to think over that splurge.
Contribute to your company-sponsored 401k up to the match
Talk to HR at your company and see what the plan is. Sometimes, in the hustle of getting a new job, you forget to set this up, but the idea is great – the money goes directly into your 401k, and you won’t even see it – so you are not tempted to spend!
Pay off debt
Take an overview of all your debt. Credit cards are usually the highest priority since their interest rates are a minimum of 15%. After that, tackle the student loans. Even though you can write off interest paid on student loans, you can ONLY do this if you make UNDER the modified adjusted gross income (MAGI) of $80,000. If you’re a software engineer in NYC or SF, you may already be out of the range to get a tax break. Pay them off as fast as you can while still investing and building up liquid savings.
When can you start investing further, though? If your student loans or other debt is less than 10%, put some money towards investing while you pay down the debt, so you aren’t losing out on returns. So if you have $500 a month beyond your other expenses and regular debt payments and a student loan at 6%, put an extra $300 towards your loan payment, and $200 towards retirement investments.
Traditional or Roth IRA?
You can contribute up to $5500 to EITHER a Traditional IRA or a Roth IRA every year. It seems small, but the numbers add up!
Investing and Saving
Look at your goals. Are you planning on settling in the area for a long time? Maybe it’s worth beginning to put money away for a down payment on a house. Or maybe you’re looking to start investing in non-retirement accounts. Start looking into other investment accounts as long as you have your IRAs and 401Ks down.
These are just the first steps, but it’s the beginning of your post-college finance plan to create a financially secure future for yourself!
