What will you do with the first paycheck you receive? The answer to this question might be quite obvious to many of you. Buy a new phone? Party your heart out? Buy branded shoes? Well, your options are endless.
Getting the first paycheck is quite a remarkable movement for many of us. Even when it was for me, but coming from a family with no financial education, I lacked the knowledge about what to do with them. Though I am pretty frugal and don’t spend too much, still what should I do? What is personal finance advice to a college grad?
I sometimes wished, someone would come to me and answer these questions. Someone would tell me what should I do with the money I earned, and how should I spend it.
No matter how much you earn it’s always less. There are always people who are ahead of you, who earn more than you, who will be more successful than you. But remember everyone is running their own race. Don’t let emotions clutter your thoughts or thinking.
Be clear on what you want to achieve, what are your standards, and how much you are ready to risk. Some of your peers will be more successful and make more money, but remember to run in your lane and be a runner of a marathon, not a race.
As the saying goes “You only learn to rise when you fall”. I have learned some lessons from my failures and my experience with the mismanagement of money. This article is something I wish someone had told me when I got my first paycheck. Here are some of the best money advice for graduates.
Disclaimer: I am not a financial advisor nor an expert. These are my own personal opinions and thoughts. If you wish to follow this advice do so at your own risk.
PS: These suggestions are best for people who have a stable income if you are an intern or working student it is better you invest that money on your own personal growth, try to learn new skills, and ignore the suggestions below.
Table of Contents
- 1 Simple Guide to After College Financial Planning
Simple Guide to After College Financial Planning
There are 7 important things that you need to know about money. These are the things, that you should keep in mind when you get your first paycheck. These are the personal finance advice for new college Grads that no one will tell you.
1. Save before you Pay
This is the first suggestion given in any book related to money. I had read this in multiple articles and finance books but never understood it. But after failing to have good savings for 4 years here’s what I really understood.
The first thing have 2 bank accounts, they can be in the same bank as well, I use two different banks. One will be your Salary account, which you can use to get your salary, money from a side hustle, and use to pay bills. The other account should be your savings account, here you need to save your emergency fund and money for a sudden investment opportunity.
Many will oppose the idea of keeping your emergency fund in the bank. But this is something I am really comfortable with. Based on my goals I have decided on my emergency fund, which is about 6 months’ salary. Another account is not linked to any payments or bills.
So the first thing I do when I get my salary is to transfer a designated amount to the savings account from my salary account. This amount includes my collection for an emergency fund and monthly pre-decided savings.
I don’t use my savings account for making any purchase whatsoever. All the expenses and needs are handled from the salary account after transferring this money. if you are not able to make your ends meet after savings then you might need to sit down and go through your expenses. This part is very important considering the after-college financial planning.
2. Health is the greatest wealth
Now, this might be optional for many of you. But getting health insurance is an important part. No point in making wealth when health is not secured. Many companies do provide health insurance, but that’s not enough in today’s world.
Based on the data the average health insurance coverage offered by Indian companies to their employees is 5L. Now if you have little knowledge about the Indian healthcare system, you will be well aware that this amount is not adequate.
Get a good health cover that covers around 15-25 L. Now, this is also based on personal capacity and salary.
3. Your Needs before your Greed
You might have a lot of things in your mind to buy. Like come on, you worked hard and you deserve every bit of pleasure you seek. But before you splurge on wants make sure to keep enough aside for your daily needs. If you are not living with your family there would be expenses like rent, bills, etc
Make these your first priority. Make sure you always consider needs before everything else. First list down all the expenses you have, for like grocery, commute, etc. Then splurge the amount which is left on your pleasures.
This would be tricky because sometimes the monthly expense may change. So you will need to create a budget for every month and then allocate money. I have already written about the 50-30-20 Budget style and will write more about budgeting and after-college financially planning using a budget in the future.
4. That man is richest whose pleasures are cheapest.
Studies have shown that when people get a handsome amount of money they like to spend on pleasure, rather than safeguard it for the future. Short-term rewards are more appealing than long-term gains. People seek easy pleasure as compared to long-term investment.
This is the same reason many NBA stars who make millions in their career, become bankrupt as soon as they retire. Now how can you tackle this urge of seeking pleasure beyond your means? Now if you read the previous statement correctly, you might have already understood the answer.
You need to seek only those pleasures that are within your means or budget. If you are making 25K/month then it would be a stupid decision to buy an iPhone. Even with EMI, you are spending way beyond your budget. So if the things you are buying are only for purpose of pleasure then make sure they are under your budget.
5. Get yourself a Credit Card.
Now, this is against conventional wisdom and many might disagree with this opinion. This is a good suggestion to those people who understand the statement “don’t spend the money you don’t have”. If you have control over your spending habits and have a good understanding of how credit works. Then this is the best decision that you might take.
When you are using a credit card it is the money that you don’t have that you are spending. It is kind of a loan that you take from the bank. One important aspect of a credit card is the credit score. If you pay your credit bill on time you will be able to get a good credit score. And a good credit score helps you to get a loan at a lower interest rate and along with it many more perks like rewards and lounge access etc.
I have multiple credit cards and hardly use any debit cards. Also, there are many reward/cashback systems for credit card users. This is a plus if you know how to make the most out of it.
Some of the credit cards that I would refer to are the HDFC Money back card/Millennia and ICICI Amazon pay card.
Note: This is just a suggestion and I am no financial expert.
6. Invest in Self-Growth
The best investment you can make is in yourself. At the beginning of your career, it is quite important that you are Investing in learning skills. Investment in self-growth would be the best money advice for graduates. Today’s market is completely dependent on people with skills. If you are good at a particular skill people are ready to pay for it.
Today there are a ton of platforms that can help you learn new skills. I recently up-skilled to Product Manager. Though I had some basic knowledge, I learned the nuances and trends that are currently present in the market. Learn new-age skills like video editing, social media marketing, SEO, etc. These will help you to get better opportunities in the future.
7. Save for Experience
This is one of the best pieces of advice I got about money. The finance influencers out there will tell you to be frugal and save every money, but what’s the point of that when you don’t spend on traveling, exploring new places, or ticking the item from your bucket list.
Now how do you do this? There are multiple options available with bank accounts. For example, you can use the passion fund feature on HDFC net banking. I use Fi’s Smart deposit feature, where I create a Travel jar and add money to that jar. Based on the budget for the trip I set aside money every week or month.
You can use the Fi account it has quite good features and mainly uses the smart deposit feature for travel. I would suggest opening a Fi account and saving here for your experiences. Use code: “NY8J739HGY” to get ₹200 when you create an account.
Expense Tracker Notion Template.
One of the best pieces of advice I got related to money management, was to track my expenses. You can control your money flow if you know where your money is flowing. This is the best advice on financial planning for graduates or students fresh out of college.
You need to log in your incomes, expenses, and Savings. This will help you understand how much you are underwater. Also keeping track of your expenditure will not only help you monitor spending but also control it. You can use the free notion expense tracker and track your daily expenses. The tracker will help you to track month-wise expenses and make smart money decisions. Click below to download the Expense tracker notion template.Download on
At the end of the day, you are the one who is at the receiving end. What I really understood about money after college is that there are many ways people manage their money. And all of those might not suit you. You will need your own unique perspective on money. This is because all of us are going through different things in life.
Some have the luxury of spending money as they please and some have to look after their family. But according to me, these are some of the best financial advice for graduate students. If I ever go back in time and meet the young self, I would give him this article for after-college financial planning.
Note this is just for beginners, you can slowly start investing in Mutual funds and try to diversify your portfolio. But remember one thing, the more the sources of income the better would be your financial stability.