While the numbers are not yet out for this year, over 414,000 students graduated high school in California in 2020 and even more, about 488,000, graduate college annually in the state—a number likely to increase, with the Governor recently passing legislation to encourage 70% of California adults to get college degrees. But graduating from high school and college are not only exciting milestones, they also mark an important transition from student to working adult and increased independence. And for students that have recently turned the tassel to the other side, it’s on to the next stage as they establish careers and, hopefully, also set personal finance strategies (goals) for the long term.
Getting a job is, of course, the first step, but this is just the beginning. As students make the transition to adulthood, they’ll need financial (in addition to career) intelligence to establish a successful personal finance strategy. What are some words of wisdom local grads can benefit from, as they come into their own paychecks and expense management, many for the first time? What advice can parents or advisors give?
Following are four tips to help set new graduates up for a more financially secure and fulfilling future—while still having fun.
- Build an emergency fund: The first step for a newly independent adult with a job is to build an emergency fund. Urgent situations happen far too often and can easily cost thousands of dollars. Many have learned the hard way that failing to plan for the unexpected—such as car repairs or unforeseen medical expenses—can have lasting financial consequences. But how much should you set aside? Look at your expenses. How much would you need to live each month? Your “rainy day fund” should reflect your employment risk, first and foremost. Unless you have a virtually guaranteed job, it’s good policy to have at least six months’ worth of rent, utility bills, groceries, and other basics set aside. If you’ve started your own business, or work at a start-up, you may want to set aside up to a year of expenses to tide you over in the event of a cash flow crunch.
- Start saving for retirement: Once you have your safety net, you should be covered for most typical emergencies, and you can begin investing in higher return assets to grow capital for long-term needs. At the very least, contribute enough to your 401(k) to get the match from your employer. That’s free money, and it’s part of your compensation. In many cases, you should probably even do this before paying down debt but do the math first. And if your employer doesn’t offer such a plan? Start saving as early as possible in an Individual Retirement Account (IRA). Many financial experts suggest saving at least 10% to 15% of your total income to ensure the same lifestyle in retirement. Getting started with the savings habit right out of college makes it much easier to meet your longer-term and retirement goals.
- Make debt payments automatic: You’ll want to get rid of the burden as soon as possible, so have student loan payments automatically deducted from your bank account. That way, you’ll never forget to pay on time. If you can, do the same for credit cards and any other debts, because the faster you get out of the red, the easier it will be to save for big milestones
- Establish a strong foundation for personal finance success: Starting your first job is a big deal but avoid the temptation to spend that new paycheck as fast as you earn it. With the right focus on savings, investments, and debt freedom, you can put yourself on track to a fun and stable financial future.
Patrick M. “Pat” Lizza, CRPC®, CRPS®, EFC, CEPA®, is the Branch Manager at UBS in Indian Wells. He joined UBS in 2011 and has built a comprehensive wealth management practice, serving professionals, entrepreneurs, retirees and their families locally with financial planning at its core. Prior to UBS, he spent 17 years in the high-end hospitality industry. He served as treasurer on the Board of Directors of Xavier Jesuit College Preparatory High School and currently also serves on the Southwestern Growers Tournament Committee for the Boys and Girls Club of the Coachella Valley.
