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New FAFSA Delay Presents an Opportunity
Guest Contributor
The following financial advice is excerpted from Coin: The Irreverent Yet Practical Guide to Money Management for Recent College Graduates by Judy McNary, CFP®, MBA.
Why? Because you’ve got dreams and goals. Big ones. And the easiest way to reach those goals is by following the Platinum Rule: Spend less than you make.
Yep, it’s that simple. Spend less money than you make. Why does it seem so hard? Unless you do something radical like completely check out of society, you are bombarded by opportunities to spend your hard-earned coin.
Now, flash back to fourth grade when you played Mad Libs® at a slumber party. Fill in the blanks: Don’t worry. I’m not saying you can’t ever buy a sleek, candy-apple red __________ (noun) or shop for a _________ (color) plaid __________ (noun)!
I am saying that you should wait to buy things until you’ve set aside a portion of your earnings. This is known as paying yourself first.
More if you've laid out some truly audacious goals. Let’s walk through a simple example. When I talk about your income or salary, I am referring to your gross salary. Gross is the amount before taxes and other deductions are taken out.
What if your paychecks vary? You’re a nurse and night shifts pay more, or you’re in sales and you get commissions every other paycheck. Don’t make this hard — just take the average.
Easiest way to make this happen? Set up auto-transfer each pay period from your checking to your savings account so you never see it. Then keep your hands off. Remember — 10% is the minimum. Aim higher to reach your goals sooner.
The first thing you should use your savings for is to build an emergency fund. This is exactly what it sounds like: a pot of money set aside for emergencies. Emergencies are unexpected financial whammies like cars breaking down or accidents that rack up medical bills. To be financially sound, you have to have an emergency fund. Period. Here’s how much you need.
If you start from zero—I know that sounds like a lot—I need you to get there as quickly as possible. Think about it. What would you do if you lost your job or had an accident while hang gliding? Your emergency fund buys you time to find a new job or put all those broken bones back in the right places.
This money needs to stay put, though. No emergency, no touchy. It belongs in a savings account — not checking. You want access to the money when you’re in dire straits, but you do not want to be tempted by it. Build it and forget about it.
If you find yourself tapping your savings to cover monthly expenses, they’re not SAVINGS! Once money goes into savings, it stays in. Not in and out and in and out like the tide.
Are you starting from zero and cleaning up a financial mess or two? Begin by saving a smaller percentage of your income — say three or four percent — then increase it every three months until you’re at the target savings rate of 10 percent.
