Welcome to the first installment in our three-part series of financial advice excerpted from Coin: The Irreverent Yet Practical Guide to Money Management for Recent College Graduates by Judy McNary, CFP®, MBA.
Judy has been CollegiateParent’s go-to money expert for years and we are delighted to share her very accessible tips. Forward this evergreen wisdom to your new college grad and younger students, too!
Top priority for your money is saving some of it.
Why? Because you’ve got dreams and goals. Big ones. And the easiest way to reach those goals is by following the Platinum Rule: Spend less than you make.
Yup, it’s that simple. Spend less money than you make. Why does it seem so hard? Because unless you do something radical like completely check out of society, you are bombarded by opportunities to spend your hard-earned coin.
Quick now — flash back to fourth grade when you played Mad Libs® at a slumber party. Fill in the blanks: Don’t worry. I’m not saying you can’t ever buy a sleek, candy-apple red __________ (noun) or shop for a _________ (color) plaid __________ (noun)!
What I am saying is that you need to wait to buy things until you’ve set aside a portion of what you earn. This is what’s known as paying yourself first.For starters, you should save at least 10 percent of your income.
More if you’ve laid out some truly audacious goals. Let’s walk through a simple example. When I talk about your income or salary, I am referring to your gross salary. Gross is the amount before taxes and other deductions are taken out.
What if your paychecks vary? You’re a nurse and night shifts pay more, or you’re in sales and you get commissions every other paycheck. Don’t make this hard — just take the average.
Easiest way to make this happen? Set up auto-transfer each pay period from your checking to your savings account so you never see it. Then keep your hands off. Remember — 10% is the minimum. Aim higher to reach your goals sooner.
In case of emergency
The first thing to use your savings for is to build an emergency fund. It’s pretty much exactly what it sounds like — a pot of money set aside for emergencies. Emergences are unexpected financial whammies like cars breaking down or accidents that rack up medical bills. To be financially sound you have to have an emergency fund. Period. Here’s how much you need.
Monthly income: _____ x three months = _____
I know that sounds like a lot if you’re starting from zero but I need you to get there as quickly as you can. Think about it. What would you do if you lose your job or have an accident while hang gliding? Your emergency fund buys you time to find a new job or put all those broken bones back in the right places.
This money needs to stay put, though. No emergency, no touchy. It belongs in a savings account — not checking. You want access to the money when you’re in dire straits, but you do not want to be tempted by it. Build it and forget about it.Set the date: I will have my emergency fund in place by ___/___/___.
Avoid the tidal savings trap
If you find yourself tapping your savings to cover expenses each month, they’re not SAVINGS! Once money goes into savings, it stays in. Not in and out and in and out like the tide. Are you starting from zero and cleaning up a financial mess or two? Begin by saving a smaller percentage of your income — say three or four percent — then increase it every three months until you’re at the target savings rate of 10 percent.