In a world where everything has gotten complex, simplicity will sometimes serve you well, even when it comes to planning for your future. Starting a financial plan for yourself while in school or just after graduation does not have to be complicated. There are some basic rules that you can keep in mind when learning to live on a budget, pay back student loans and plan for the future.
1. Use the 60-25-15 rule. Live on 60 percent of your income; use 25 percent roughly to cover taxes on income; save 15 percent. To live on 60 percent of your gross income, this includes loan repayments, home mortgage payments or rent, clothing, food, health insurance, entertainment and travel, etc. Taxes refer to income taxes due to the federal government, state government and any local government. The 15 percent can be saved to a savings account for an emergency fund (like Ryan Schulte mentioned in his March Money Monday blog post) or to a retirement plan. Most importantly, start saving early. Even if you cannot save much at first, developing a habit of saving is key.
2. Pay off your highest interest debt first. If you have credit card debt coming out of school, this is typically the type of debt you will want to get a handle on first, as it generally carries a much higher interest rate than student loans or mortgages.
3. Have an impeccable credit history. Paying your loans on time, paying off credit cards and making wise decisions about where to put your money (i.e. not toward a $100,000 car right out of school) will build good credit toward future significant purchases or the purchase of a dental practice one day.
4. Execute health care powers of attorney and financial powers of attorney for yourself. Many advisers suggest that each young adult execute a will. For an unmarried adult without children, I typically consider a will to be less significant than having valid powers of attorney to instruct your loved ones with regards to your health and finances if you are unable to do so for yourself. Many states have statutory powers of attorney that can be used, but check with your financial adviser to be sure.
~Megan Mathers, JD, Mathers Law & Tax Services
About Megan Mathers
Megan is an accountant and tax attorney with Mathers Law, a firm focused on providing accounting, tax, business advisory and legal services to the dental and medical communities. Megan earned her Bachelor's Degree in Accounting from Marquette University and her law degree from Loyola University Chicago School of Law. Megan's practice focuses on tax compliance, tax planning and wealth and estate planning.