If you have successfully obtained your first job after graduation, congratulations! It is an astounding achievement that you’ve accomplished. Now that you’ve put in the work in your education, traversing through mountains of quizzes, exams and assignments, you’re finally ready to get your start on the ‘adult life’ everyone’s been raving about. But with great power comes great responsibility, and by responsibility – we mean how to manage finances.
However, be warned young padawan, for the road ahead is not all sunshine and rainbows. As satisfying as it is to finally be able to sustain yourself with your own efforts, many graduates make the mistake of not planning ahead in terms of personal finances. As such, they often either don’t keep track of their spending or worse, spend more than they can possibly afford.
We’re not here to incite fear, quite the opposite actually – we want to help YOU (Mr/Ms fresh graduate) have the best or at least, the second best financial planning that will help you keep your expenses in check. The key step to manage finances is to break it down to a foundational level.
1. What is Financial Literacy?
The first step to taking charge of your finances is to embed financial literacy into your veins. Well, not literally, but you get the idea. You may read at this term and feel overwhelmed by it’s seemingly ‘complicated’ magnitude, but it isn’t like that actually, not at all.
To put in layman terms, financial literacy is basically understanding and implementing your financial resources so you can get the most out of your money – be it in personal financial management, budgeting or investing.
Personal finances are tough to everyone, and we understand that it can make you anxious, but – the earlier you start understanding and breaking down the complexities of financial management, the sooner you will be thriving in financial literacy.
2. How Should Fresh Graduates Allocate Their Budget?
After graduation there are certain key financial responsibilities that fresh grads can expect, most notably are their student loans.
Take PTPTN for example, which revolves a loan scheme to help students pay out their student expenses, and depends heavily on students to pay back the loan so newer students can benefit from it too. On top of student loans, you may also meet with various other commitments after you graduate, such as rent, monthly car repayments, bills and so on.
So the question still stands, how does one allocate their budget amid this situation? There are two rules of budgeting you can follow which are:
80/20 Method 💰
There’s actually not much to explain, the 80/20 rule simply means allocating 80% to your wants and needs and the other 20% to savings. This budgeting method is excellent for people who want a straightforward, clear cut saving strategy.
It focuses on paying yourself first, ensuring that you have money coming in to your savings each month – as well as breaking down the bulk of your salary to your necessities.
50/20/30 Method 💵
Ah yes, the 80/20 method actually originated from the 50/20/30 method. This budgeting technique breaks down your after-tax income into three categories:
- 50% needs
- 30% wants
- 20% savings
The difference between this method and the previous method is that it is more clear in the division of your budgeting. The bulk of your salary will go to your needs, with wants and savings taking the second and third place respectively.
3. What Are Common Mistakes that Fresh Graduates Make in Money Management?
Money management is a habit that’s often strengthened by money building habits they’ve built up throughout their life. Now we understand, some people are privileged enough to be taught to utilise money-saving techniques from a young age and some were not.
But that’s the great thing about being an adult, you now have the freedom and ability to take charge of your life and do things you could never have done before. With that being said, let’s look into some of the most common money-saving mistakes that fresh graduates do when starting out their first job:
- Not putting away any money for savings ❌
- Not tracking transactions ❌
- Not paying bills on time leading to bad credit score❌
- Prioritising on wants instead of needs ❌
4. Why Are Investments Important?
Investments are important and essential for one thing, and one thing only: it helps you grow your money. Or the more technical term, compounding interest. It simply means taking the capital from savings you put into an investment, and using that as a capital to grow your finances passively.
Investments, when done right – can be an automated money printer for you. Investments help you reach your financial goals through compounding.
If you’re a fresh graduate looking to engage in new career paths as a real estate negotiator, come and talk to us. We’ll be there for you!