Graduating to financial independence

Spring weather, college graduations and opening day. This time of year always makes me hopeful. Of course, with my Chicago Cubs, my optimism is usually short-lived.

Today, I want to help college seniors – and any of you looking for financial stability – get started on the road toward effective money management. Here are 10 steps to help give hope, motivation and direction toward gaining control of your finances:

Develop a vision for your life.

Spend quiet time figuring what you want from life and why. The “why” is more important than the “what.” Consider what motivates you, inspires you and drives you. Build your goals and dreams around your personal “why” and align your spending, money and time to meet those goals.

Determine how much it will cost to get settled.

Advance planning is crucial to making a successful transition when moving to new city or even to a new home in the same city. Budget for moving costs, income interruptions and move-in deposits. And don’t forget to plan for unexpected expenses.

When starting your new job, ask how much of your pay you will take home.

Especially if this is your first professional job, schedule an appointment with the human resources office to determine the cost of your benefits and taxes so you know exactly the amount of your take-home pay. You may be surprised by how much of your paycheck goes to taxes, insurance and Social Security.

Keep your cost of living low.

Recent grads, now is not the time to ditch your roommate and splurge. This is the time to keep expenses low and save. You will be rewarded later.

Get the right coverage.

Make sure you have the right auto and renters insurance. If you have moved, you’ll need to get a new agent. Ask your agent about renter’s insurance. An inexpensive policy will cover your personal property.

Start your emergency fund.

The first step toward financial independence is building an emergency fund. If you are making less than $25,000 a year, start with a $500 fund. Otherwise, set aside $1,000 in a savings account. Once you are debt-free, grow your emergency fund to equal three to six months of living expenses.

Create a realistic budget.

A realistic budget includes: necessities: rent, food, utilities, gasoline; obligations: debts, other bills; less-than-monthly expenses: car insurance, clothing, etc; nice-to-haves: dining out and entertainment.

Pay off debt.

Debt is the enemy of financial independence. Start with your smallest debt and pay them off as aggressively as possible.

Be careful with credit cards.

If you are carrying a balance, stop using them and pay them off. I recommend using credit cards only for car rentals and travel. If you can’t immediately pay off a charge to your card, don’t use it.

Begin investing.

Once you are debt-free and have an emergency fund, start investing. Begin with 10 to 15 percent of your take-home pay and increase that rate with each raise.

Follow these steps and you’ll achieve your goals – unlike the Cubs.

Durango resident and personal finance coach Matt Kelly owns Momentum: Personal Finance.

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