5 money lessons for fresh graduates
Congratulations! After working hard to get that college degree, your labor has finally paid off.
Perhaps in a few months' time, you will join the labor force, start a new career, and make your own money. Now that’s the most exciting part – making your own money! But are you truly ready to handle your own finances? Are you equipped with the right skill sets to make wise money decisions?
It is a good bet that most of you never thought of those questions before simply because the only agenda you have right now is how to get a job and make money, right? Well, the way you manage your finances especially in the next few years of your working life is most crucial.
Being in the work force for the first time is the perfect time for you to get your financial life started on the right foot. Consider these money lessons:
1. Pay your “future self” first.
Think about your future and ask yourself: "What do I want to achieve 5 or 10 years from now? How do I want to see myself in the future?" If you dream of seeing yourself down the road enjoying all the finest things in the world, then you need to start saving for that future. Saving should not be painful if done the right way. Pay your future self first but do not forget to take care of your present self as well.
I encourage you to start implementing a simple spending plan that will work for you. A spending plan will help you keep tabs on where your money goes. Try dividing your monthly income into 4 baskets:
- Necessity basket. The part in your income for your living expenses like food, transportation, rent, and others. Make sure this basket is spent on living expenses alone – shopping excluded.
- Investment basket. The part of your income for your savings and investments. This basket will be your ticket to wealth building and will greatly dictate the outcome of your future self. There is no magic formula on how much you should allocate for this basket but it is a good start if you can allocate 20% of your monthly income to this basket and regularly increase it as your income goes up over time.
- Gift basket. Also known as BIR – Bureau of Itay (father)/Inay (mother) Revenue. This is the part of your income that will be allocated if you want to give back or provide monthly allowances for your parents.
- Feel-good basket. This is your indulgence fund. Spend it any way you want, be it on your favorite clothing line, a trip to a fine dining restaurant, or a relaxing massage. Treat yourself for working hard.
You see, building a bright future is not entirely about penny-pinching and depriving yourself. It is a balancing act between your today and your tomorrow. Implement a spending plan and allocate more percentage of your income to things that matter to you.
2. Avoid consumer debts.
Approximately a year into employment, credit card companies will start wooing you to apply for a credit card. It might look cool to pay for food by just one swipe in that credit card machine but it is not.
Remember, debt is bondage. Paying things on credit is like pawning your future income. Credit cards, if used wisely, have their own benefits but if you are only starting managing your own finances, it is better you do not get one. You might end up in a financial disaster. Having that card will just encourage you to spend now and go broke later.
3. Beware of the “income trap.”
Heard of the saying, “What matters is not how much you make but how much you keep?"
It is easy to get caught up with the idea that increasing your income equals improving your financial life – not necessarily. Most of the time, the higher your income goes up, the higher the probability of ending up in a financial mess because your expenses will eventually catch up if you do not manage your spending wisely.
For example, if you get a promotion and your income went up by P5,000 ($112.29) monthly, do not hastily pack your bags and move to a nicer apartment that would cost you P6,000 ($134.75) more than what you are currently paying. Look at the bigger picture and examine every line item in your finances before spending on that big ticket item.
4. Invest. Invest. And invest.
You might think that you are young and it is too early to dip your hands into this serious stuff. But you have many years ahead, making you a better beneficiary of investment. You have more years to grow your money and make yourself rich.
Did you know that by saving as low as P50 ($1.12) a day (or P1,500 ($33.70] a month) and investing the same amount every month for the next 19 years to an investment that grows 10% a year, you can have a million before you reach your 40s? Also, by increasing your investment to P2,500 ($56.16) a month will provide you with half a million in 10 years and a million in 15 years.
The good thing about this generation is we are in the information age – tons of information can be extracted with a flick of one’s finger. Learn about stock investing, mutual fund, and Unit Investment Trust Fund (UITF). These are great investment instruments to delve into as you begin your investment journey.
5. Keep studying.
I know! You just graduated and just hearing the word “study” makes you want to vomit.
But continuous education is what separates the misers and the winners. Successful people whether in the corporate world or in business have one thing in common – they do not stop learning.
Thus, invest in your most important asset: yourself. Continue to develop your skills and competencies for they will be your springboard to success in a more competitive marketplace.
These are exciting times for you, fresh graduates. Embrace the changes in your life with zeal.
However, exercise prudence as well especially in making money decisions.
Indeed, time flies so fast. You do not want to wake up one day and a decade of your working life has already passed, then ask yourself, “Where did my salary go?”
Again, congratulations and good luck! – Rappler.com
Jesi Bondoc is a Registered Financial Planner of RFP Philippines. He is currently the Director of My Wealth MD and Partners, Incorporated, specializing in investment advisory and oversight. He also conducts wealth planning seminars and workshops for various corporations in the Philippines. You can reach him at firstname.lastname@example.org or email@example.com. To connect with an RFP, visit www.rfp.ph or email firstname.lastname@example.org.