Paying college costs

In the next couple of weeks, thousands of college seniors across the U.S. will receive their diplomas, leaving behind their carefree days on campus and entering the “real world.” During this transitional phase from college life to adulthood, millennials are faced with many financial decisions, but developing a plan early could help them increase their chances of having a financially secure future.

Get Your House in Order

The foundation of any plan starts with protection. For those just starting out, it means protecting the golden eggs (like a car, home or apartment) as well as the goose (you). Review your auto coverages to make sure you have adequate protection from physical loss. In addition, make sure you have enough liability protection (remember, you have an income to protect from loss).

To ensure protection for your loved ones, routinely assess your insurance needs, especially after life events like the birth of a child, an auto or workplace accident, or a change in a family member’s medical situation.

The 70-20-10 Rule

On your own, it can seem challenging to make ends meet and plan for the certainties in life (like retirement) as well as the “what-ifs.” You may feel saddled with debt repayments, but hope remains if you use this framework:

Try to live on 70 percent of your income for essential spending, which includes rent, utilities, food, auto expenses and insurance costs. Note this does not include any debt repayment (that will be covered later).

Next, strive to save 20 percent of your income. This includes saving for short-term goals (5 percent), like a new computer, car or vacation. Allocate another 5 percent toward building your emergency fund. Continue to build this until you have an amount equal to three to six months of essential expenses. Lastly, allocate 10 percent toward long-term goals (i.e., retirement). Make sure you take full advantage of any employer-matching contributions to your 401(k) plan if your job offers one. If you have additional funds available, consider other retirement vehicles that could help you achieve your retirement goals.

Lastly, allocate the remaining 10 percent toward debt repayment, including credit cards, student loans and car payments. These represent aspirational guidelines to strive toward. Your situation and needs may differ.

Invest (Wisely) in Yourself

Keep your eyes open for ways to invest in yourself. Will additional education or coursework help you advance in your position or industry? Does your employer offer tuition assistance for a graduate degree? Are there employer-sponsored courses available that could help you advance, such as business writing or public speaking courses? Make sure your employer will value the knowledge or skills you acquire, and allow you to advance in your current position or within the industry, and return your investment of time and energy.

The Most Important Step

Whether you just graduated from college or you graduated decades ago but need to rein in your financial future, the most important step you will take is the first one. Pick one or two areas to focus on in your financial life, and remain diligent about taking those corrective actions. Don’t forget to reward yourself (a little) as you make those positive changes – the results pay in a lifetime of financial security.

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