Grads, Dads, Moms, Babies and Brides...tis the Season!

Spring and early summer are filled with many opportunities for celebrations and are popular times for a variety of planned transitions in our lives.

Among the customary transitions, May and early June mark a milestone for many students as they move forward to a new stage of life. In our April article, we talked about education costs. Now let’s move on to the good part…Graduation!

Most of us at this time of year have or know an upcoming graduate. If you have a high school grad in your life, we encourage you to circle back to the education costs article. If you have or know of a college graduate that is getting ready to “get off the payroll”, we hope you (and they) find this advice timely and helpful.

Establish an Emergency Fund: The fund should be large enough to serve as your “buffer account,” enabling you to avoid carrying high cost debt on your credit cards. Use the emergency fund when necessary to pay off a balance beyond your planned, regular cash flow items which will allow you to avoid paying usurious interest rates. Then, focus your saving efforts to replenish your emergency fund ASAP. How large should your emergency fund be? Minimally, it should be adequate to pay off your monthly expenses for the time it would take to find a new job – this tends to be the largest unplanned expense for most. We’ve found it helpful to keep this account separate from your other accounts as dipping into it should be a conscious act – not a matter of routine. Note: Regularly tapping your emergency fund is a red flag that your cash flow plan needs adjusting – see below.

Develop a Cash Flow Plan: A cash flow plan is simply a plan for your income vs. your expenses. If your income does not exceed your expenses, start over! Be sure to include the “cost” of your long-term goals in the savings section of your plan. You may periodically deviate from it, but there is no need to toss the baby out with the bathwater when you stray. Think of it as a map; when you get off your intended route, work to get back on the right path as quickly as you can. Be mindful of impulse purchasing. Every time you reach into your pocket or purse, you’re making a financial decision, and, if it is an unplanned purchase, you are consequently saying that it is more important than your established goals.

PYF: The old-adage of Pay-Yourself-First (PYF) is a good one. Automated savings (at least 15% of gross income as you start out if you can) is the surest method of getting it done. Fill up your tax-sheltered vehicles first, but only after you have accounted for your emergency fund. On that note, never leave money on the table – minimally contribute enough to your 401(k) or 403(b) to get the match.

Credit cards aren’t for credit or frequent flyer/sleeper/shopper points! They are for convenience and record-keeping. Outside of rare circumstances, if you are not paying them off every month, you might consider not using them. A good credit score is an asset – we like Credit Karma for monitoring your credit score. Know where you stand!

Don't be Fooled - Looks Can Be Deceiving: Don’t confuse easy access to credit with real wealth. New cars, big houses, and exotic vacations may just be a sign of high debt. Real wealth is usually a result of responsible spending, responsible saving, and trading glamour for modesty and security. Beware of the shiny objects...they are an insatiable habit. You may consider reading The Millionaire Next Door. It is a thoughtful book which helps you develop habits for creating meaningful wealth.

Save Early...and Often: Saving aggressively early can mean having to save less later (when you can least afford it). Given that you are likely to work 30+ years, you have to create enough wealth to support your spending during your last 30+ years. Starting early is key to taking advantage of the ‘miracle of compounding.’ If you start saving 15% of all income sources when you are 22, you will likely be on the path to creating the requisite retirement portfolio. For each decade you wait, add 10%. So, if you haven’t started saving by the time you are 42, you’d need to save 35% of your income – at a time, when you will have the expense of high school/college kids and all the associated costs of cars/school/extras.

Continuing Education: A good financial education can be worth millions – spending the time to educate yourself either through an advisor or through reading will pay for itself many times over. We recommend Kiplinger’s Personal Finance magazine for others who want an unbiased and holistic reading base.

Be aware of lifestyle creep: Try to grow into your income slowly, and try to never fully grow into it. Pause before potential expenditure explosions (this is especially true for our medical professional community; delayed gratification as a result of years of medical school and residency can trigger this response).

Communication with your spouse or fiancé: In this season of Grads, Dads, Moms, Babies and Brides, do your best to have honest money conversations with your spouse or fiancé. We promise you that it’s easier to have those conversations (and figure out your roles) before you get married, but it’s never too late to communicate clearly on your goals, priorities, and needs. We are happy to meet with engaged friends and family, new graduates, or even those who are further along in life to get the conversations started on these matters. We believe these conversations can have a profound impact on our community which is one of the many reasons we love what we do.