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May 18, 2017

A Wealth Building Plan for You: College Grad Edition

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Track all of your student loans and don’t shy away from investing in stocks.

By Gregory S. Ostrowski, Managing Partner, CERTIFIED FINANCIAL PLANNER®, CRPC®,  Scarborough Capital Management  / Previously appeared on US News & World Report

 

It seems like only yesterday that you were focused on nothing but your GPA. Now, however, you have student loans and a job to consider.

Investing can be a confusing and scary proposition sometimes. You’re never really sure if the information you find is exactly for you (in the case of some online publications), if the data is relevant (in certain financial studies), or if the advice is credible (such as when you receive a stock tip from your Uncle Fred because he “knows a guy”).

Although we can’t help you avoid a poor recommendation from a relative, we can at least provide you with steps to take that are a bit more tailored to you. As part one of our series, “A Wealth Building Plan for You,” we’ll address the needs of the soon-to-be or recent college grad, and what you can do if you’ve already graduated.

You have a college degree and a job. That’s a great start. Maybe you even just moved into a downtown apartment with some friends and are excited about seeing what the city can offer. But as your paychecks start coming in, you realize your money is heading out twice as fast to cover rent, utilities, food and those dreaded student loan payments.

With all of that going on, how do you get organized to not only pay off what you need to, but save for the future as well? Here are some steps to take and items to consider.

Don’t shy away from investing in stock. Just because the stock market has shown signs of volatility and tanked as recently as six years ago, doesn’t mean investing in equities shouldn’t be an option at all. By keeping a relatively balanced portfolio, you can help reduce many of the risks that are commonly associated with owning stock.

Consider a Roth 401(k). This plan taxes your money as it’s going in, not as you withdraw. Chances are your tax bracket is going to be higher as you near retirement than it is when you’re just starting your career. Also, you don’t pay taxes on your investment earnings, unlike a typical 401(k) plan. Consider paying your taxes now and delaying gratification.

Review your 401(k). Every 401(k) plan has unique characteristics. To maximize your plan you need to know all of your options, participate enough to take advantage of any company match, and allocate your investments appropriately.

Use spreadsheets and automatic payments. This one is straightforward, but not easy. Track all of your loans, including the principal balance, interest rate, monthly payments and pay-off date. Revisit this sheet on a semi-annual basis to see what progress you’ve made, and if any interest rates have changed. This is especially important if you have numerous student loans, or loans with variable interest rates. This can also help you plan out which loans to attack next. Next, set up automatic payments for as many bills as you can. This takes a mundane task off of your plate that can easily slip through the cracks, potentially causing fees and penalties. Don’t get caught late.

Bonus tip: By paying off your smaller debts and loans first, you may actually be in better shape down the road. The thinking behind this is that if someone sees progress by way of finishing payment on loan, that person is more apt to try to be a little more diligent on paying down the rest. This is not the only way to pay down debt, but it can be effective for some.

Purchase with value. You may want to go on a trip to Paris, France, but a trip to Paris, Texas is probably more within your budget. Just because you can’t afford that vacation now doesn’t mean you’ll never get there, and it also doesn’t mean you can’t take one at a more realistic location. By staying within your purchasing means, you’ll be more likely to save what you need for your emergency fund, retirement and all of life’s other required expenses. Ultimately, this could allow you to take more of those trips you’ve dreamed about after your money has compounded.

Give back. You may not be making as much money as you’d like, but that doesn’t mean you can’t give back to your favorite charitable and social causes. When you do though, consider giving back your time instead of clicking the donate button on their website. This will not only make it easier to stay within your budget, but it may even give you a greater sense of contribution, since you’re seeing their progress firsthand. Check out programs like TimeTradeCircle.org of the Greater Boston area, for more information on time-trade opportunities. If there is no such program in your area, you can always roll up your sleeves and start one.

As you can see, saving, investing and getting out of debt as a recent grad can actually be fun once you develop the right mindset and plan. If done properly, before you know it you’ll have enough money for that trip to Paris: the one you actually want to go to.

 

 

Securities offered through SII Investments, Inc. (SII), Member FINRA, SIPC. Advisory Services offered through Scarborough Capital Management (SCM), a Registered Investment Adviser. SII & SCM are separate companies. Please consult with your representative to confirm on which company’s behalf services are being provided.  Neither SII nor SCM provide tax or legal advice.

Opinions, estimates, forecasts and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results.

Updated as of March 2017

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