I just graduated from college and I want to create a personal financial plan that mainly focuses on the short- and middle-term. How can I make my plans better?
“Your life will be changing drastically from being a student to finding a full-time career,” said FPA member Martin S. Coren, CFP®, ChFC, of MSC Financial & Tax Services.
In the short-term, which is usually one year or less, Coren said he typically recommends building up an emergency fund and focusing on short-and near-term expenses. He suggested that you establish a systematic investment plan for those accounts and invest your monies in a money market fund and a savings account. “In today's environment you probably will be hard pressed to receive a great return on these vehicles, but at least your principal will remain stable,” he said.
For mid-term goals, he recommended that you first define your goals. In addition, he recommended that you invest a little into large dividend-paying stocks — a mutual fund works well for this purpose. “After you get settled with your career and have a better handle on your income and expenses, you should go back and revisit your financial plan as your goals, time horizons, income and expenses probably will change, as will your plans and resources,” Coren said.
FPA member Jenifer Lee, CPA, CFP®, MBA, of 4D Tax and Financial Planning, LLC suggested that setting goals is important. “Now you need to chart a course to reach your short- and intermediate-term goals,” Lee said.
According to Lee, you also need to do the following:
- Prepare a net worth statement to include what you own and what you owe. What you own includes bank deposits, investments, retirement assets, car, home, personal valuables, etc. What you owe includes student loan, credit card debts, home mortgage, etc. “In order to reach your goals, you need to have financial resources,” Lee said. “Save for it. For example, you want to travel to Paris by the end of the year and it costs $1,500. You need to save for it. Don't borrow from your credit card.”
- Prepare a spending plan to show how much you make, how much you spend and how much you save. “Take out taxes (Social Security, federal and state income taxes) first,” Lee said. “Then separate expenses into ‘needs’ and ‘wants’. Needs are non-discretionary and wants are discretionary. Control your discretionary spending.” Lee also noted that if you are not sure how you spend your money, you need to track your spending to the pennies for three weeks to find out.
- Now you know how much you can save per paycheck. “You need to prioritize your goals,” Lee said. “If you want to spend $5,000 a year for traveling and you also want to save $60,000 for a down payment so you can buy an apartment in three years but you cannot do both, you need to decide which one is more important.”
- Stay focused and keep an open mind. “Before you make any decision, consult with a financial professional so that you know your options and you only take calculated risk,” she said.
“Financial planning is a discipline,” said Lee. “It can benefit you as an individual; it can also help you with any business ventures you may have.”