Financial Planning for Recent College Graduates

 

What is Financial Planning?

Financial planning is a comprehensive and custom process of managing your money to achieve financial security and to meet financial goals. Strategies are implemented to optimize wealth accumulation and minimize your tax liability while implementing risk mitigation strategies to protect your assets and achieve your financial goals. Financial planning considers:

• • Budgeting and cash flow management—understand how you spend your money and identify areas to improve upon, pay down debt, build a good credit history, and identify a budget for savings.
  • Savings and Investment Management—establish an emergency fund, employer or self-employed retirement plans (tax-deferred), and individual investment strategies (tax-free and taxable accounts).
  • Tax Planning—develop strategies to minimize tax liability and optimize tax-advantaged accounts.
  • Risk mitigation—protect income and assets with the use of health, life, disability, property, auto and liability insurance. Other strategies include the use of an emergency fund, Roth IRAs, Health Savings Accounts (HSA), and taxable brokerage accounts.
  • Estate planning—plan for the distribution of assets, according to your wishes, after death. This includes wills, medical directives, beneficiary forms, trusts, and powers of attorney.

Top 5 Benefits—For a recent college graduate or someone early in their career, working with a financial planner can be a powerful way to build a solid foundation for long-term financial success.  Potential financial stress is reduced by making informed decisions.

• • Build smart financial habits early
  • Manage student loans and debt
  • Start retirement savings right the first time
  • Create a clear plan for financial goals
  • Avoid potentially costly mistakes

1. Build Smart Financial Habits Early—Habits formed in your 20’s and 30’s compound over time, whether good or bad.

• • Develop and stick to a realistic monthly budget.
  • Identify discretionary income to commit to an investment strategy. Investment savings can be used to fund retirement needs, an emergency fund, first home purchase, and other financial goals.

2. Manage Student Loans and Debt—mismanaging debt early can lead to years of financial setbacks.

• • Choose the right repayment plan for your financial situation and understand your refinancing options.
  • Balance debt payments with savings goals.
  • Build and manage “good” debt—evaluate and choose a consumer credit card that provides benefits (cash back, travel rewards, etc.) and reduces fees. Utilize a credit card for monthly living expenses and pay off monthly. This method can help to track spending and establish a strong credit history.

3. Start Retirement Savings Right the First Time—saving even a minimal amount early can have a huge impact due to compounded earnings.

• • Evaluate and establish an employer or self-employed retirement plan. Begin contributions to a tax-free Roth IRA and/or tax-deferred retirement accounts, such as a 401(k) or IRA.
  • Choose appropriate investments based on your risk tolerance, risk capacity, and time horizon.
  • Evaluate and take advantage of other employer benefits, such as Health Savings Accounts (HSA), Flexible Savings Account (FSA), group term life and disability insurance, health insurance, and possible employer educational benefits (reimburse for further education or pay off loans).

4. Create a Clear Plan for Financial Goals—without a clear strategic plan, people are often focused on short-term wants at the expense of long-term goals.

• • Pay off debt, whether it be student loans and/or consumer credit cards.
  • Identify financial goals and develop a savings strategy to purchase a car, purchase a first home, travel, or pursue other hobbies.
  • Plan for graduate school, other professional certifications and licenses, or future entrepreneurship.

5. Avoid Potentially Costly Mistakes—mistakes made early can have long-tern consequences; however, identifying and taking corrective actions earlier, rather than later, can ensure you are back on the right path for financial success.

• • Choose the right types of insurance specific to your needs.
  • Avoid bad investments or scams.
  • Navigate, with a trusted financial planner, taxes and major financial decisions.

Final Thoughts

Choosing a trusted fiduciary, someone who prioritizes your needs above their own, can be an important step in providing your financial security and ability to meet financial goals. To get a better idea of the breadth and detail of NovaPoint’s financial planning process, check out this Sample Financial Plan for Recent College Grad.

At NovaPoint, our investment, wealth management, and tax experts can help advise you on your employer benefits, establishing a retirement plan, managing debt, optimizing tax strategies, and planning for various financial goals. If you want to manage your money more wisely and develop your own financial plan, contact us here.

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Written by Meghan Hoover, Investment Associate,  Financial Planning Team

NovaPoint – Financial Planning and Wealth Management

Want a printable version of this report? Click here: Financial Planning for Recent College Graduates

To learn more about these topics and our investment strategies, call us at 404-445-7885 or contact us here.

Do you understand your personal investment risk tolerance and the risk of your current portfolio? You can learn these by taking our Risk Analysis Questionnaire.