It was the best of times; it was the worst of times...that's how it seems for many graduating students these days. Their debts are high and the chance of finding a good paying job appears to be low, according to the leading pundits.
They also advise new grads to pay off their school debts as quickly as possible, to start savings for retirement and for the ever-imminent rainy day. This may all seem very daunting if you're a grad with two or three part-time jobs who's barely scraping enough together for rent. Here are some suggestions on how you can achieve these goals with careful planning and creativity.
Create a monthly budget. Setting it up will require a bit of effort, but it's worth it in the long run. Remember:
- Keep it simple: It should be straightforward and flexible so it can be easily modified if your income or expenses change.
- Set your financial objectives: Your objectives should be realistic, measurable and time-bound. This will help you stick to your budget and to achieve your financial goals.
- Be realistic and specific about your spending: Go through your account statements to identify your spending patterns. Each expense item will have its own line in your budget, like housing, groceries, utilities, transportation, school debt payments, entertainment, clothing, etc.
- Stay organized: Save all of your receipts and track them against your budget.
Talk to a financial planner to help you define your short- and mid-term savings goals, assess the savings options available to you and get advice on how to get an early start on your retirement savings strategy. One of the best ways of doing this is to take advantage of dollar cost averaging, which is all about using time and consistency to grow your money. Here's how that would look: Suzanne can contribute $1200 this year into her retirement savings plan. She can either wait until she's saved up $1200 and invest it all at once, or contribute $100 each month. Here's how dollar cost averaging pays off:
Lump Sum Contribution: She saves $1200 by the end of the year and is ready to invest. Suzanne decides to purchase mutual fund shares with a unit price of $5. Her $1200 buys 240 units.
Regular Contributions: By contrast, Suzanne invests $100 per month through regular payroll deductions. Because of market fluctuations, the cost per unit changes every month allowing her to buy a different number of units with her monthly contributions. At the end of the year, Suzanne was able to buy 266 units, valued at $1330. She's now ahead by $130 ahead.
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