To all graduates, congratulations!
Welcome to the awesome world of work!
I remember the moment I received my first paycheck.
The proud feeling of being able to earn and be a productive member of society.
But what I don’t remember is how I spent my first paycheck .
Or how I spent the succeding ones on my first years of work.
If you are a fresh graduate, I hope that through this article, you will not commit the financial lessons I or most of my batchmates learned the hard way.
I believe that this article is not only for Fresh Graduates but for everyone who is seeking Financial Freedom.
#YOLO – You Only Live Once
We are believers that we only live once!
That’s why we need to seize every opportunity and enjoy life!
We need to live in the moment!
Forget the past and the future.
However, with the same idea, of #YOLO, we also need to learn from the past and plan the future.
It’s okay not to plan for the future if you will die tomorrow or in the next few weeks.
But what if you live until Age 100 and at age 60 you weren’t able to prepare for retirement and you are drowning in debt?
Will you work until 100? Sell you house? Sell your car?
Then at that moment, you will live regretting the past!
To those carefree #YOLO days!
Yes, you were able to enjoy the first 10 years of your adult life.
But you realized, you were the suffering the last 70 years.
The solution: Don’t Commit These Top 3 Financial Mistakes!
Mistake #1: Not Having A Budget.
Most of us were not raised by financially savvy parents.
Most of our parents might be just living paycheck to paycheck and might also be drowning in debt.
In school, financial literacy is not taught.
We were taught how to make a living but weren’t taught how to make money make a living for us.
The Foundation of Wealth is the ability to create PROFIT.
In personal finance, PROFIT = Income – Expense.
It is the SAVINGS from your Income after Expenses.
Unfortunately, most people know how much they are earning but DON’T know how much they are spending.
Let me try it with you.
Can you tell me within 1 minute how much exactly you spent last month?
If you were able to answer, VERY GOOD!
If not, start tracking your expenses.
Use excel, mobile app, or a notebook.
I us Spendee to track my expenses.
But the formula is not INCOME – EXPENSE = Savings.
Why? Because what do you do to the excess money in your ATM?
Let’s say it’s 2 days before the next pay day and you still have P5,000 in your ATM, what will you do?
Most of us, especially fresh graduates, will spend it to watch a movie, buy new clothes, go out to dinner, or just spend it.
The FORMULA is this: INCOME – SAVINGS = EXPENSES.
You deduct a portion of your income usually 15-20% for a savings and investment plan.
Then the remaining, you budget for your expenses: transportation, food, rent, and other bills.
To know more about budgeting, click on this link where i discussed how EASY and FUN it is to budget.
MISTAKE #2: Not Having a Financial Plan.
Retirement Plan
Since fresh graduates are usually 21-23 years old when they start working, they feel that the whole world is ahead of them and they don’t need to plan especially their finances.
This is far from the truth.
The best time to start funding your retirement is the moment you received your first pay check.
Why? Because you want to take advantage of TIME and the power of COMPOUNDING INTEREST.
I discussed retirement planning in detail on this article.
Emergency Fund
After setting up a retirement fund, you should slowly build your Emergency Fund.
An Emergency Fund is 3-6 months worth of your monthly expenses.
This will make sure that you can survive for the next 3-6 months in case of a job loss.
Or that you have money in case of sickness or other emergencies in the family.
This will also give you the freedom in case you can no longer tolerate your boss or company culture and you want to go to another company or new industry.
Don’t get overwhelmed, you don’t need to accomplish this in 6 months.
It might take you 2-5 years but what is important is you start now.
To know more about Emergency Fund, click here.
Insurance and Health Plan
Why would you, a fresh graduate, think of an insurance and health plan?
You are in your prime!
You don’t feel anything!
You are HEALTHY!
And that is the point, your HEALTH can still afford to buy INSURANCE.
Insurance is not bought by money or age, it is bought my health.
Anyone can invest but not anyone can buy insurance.
You may say that why not buy it after 5-10 years from now?
The answer is this: Because LIFE HAPPENS.
Let’s say you are saving P5,000 month or P60,000 per year.
After 5 years of working, stress, and unhealthy living, you were diagnosed with cancer (most cancer patients have no family history of cancer).
How much were you able to save for 5 years?
P60,000 per year x 5 years = P300,000.
Will P300,000 be enough for your chemotheraphy?
But wait! After spending P300,000, you don’t have any savings!
What will you do? Beg? Go into debt? Ask money from parents, relatives, and friends?
But if got an insurance plan with critical illness at Age 21 for only P1,500/month, the insurance company will give you P1,000,000.
What’s good with today’s insurance plans is that it has an investment component.
To know more, click on this link.
MISTAKE #3: Credit Card Debt
Once you are start working, banks will find ways to contact you to offer credit cards.
In malls, you can get a credit card as long as you are working.
The sad part is your credit limit is almost always twice or more of your monthly income.
And once you have a credit card, you can get another from another bank by just presenting your existing credit card.
And the worst part is this, the new card has a higher credit limit than the previous one.
So let’s say you are earning P20,000 per month.
1st Credit Card Company gives you P50,000 Credit Limit.
2nd Credit Card Company gives you P75,000 Credit Limit.
3rd Credit Card Company gives you P100,000 Credit Limit.
You are just earning P20,000/month or P240,000 per year.
BUT you can take a debt worth P225,000 per year.
Because you felt rich than how much you are really worth, you start eating out every night, buying gadgets and appliances, and travelling with a deffered payment scheme of 12 months.
Let’s say you’ve used the P225,000 credit limit and deferred it for 12 months.
Your monthly payment is now P18,750 per month.
But you were just earning P20,000 per month.
You are now left with P1,250 per month.
It will not be enough to buy lunch or transportaion for the week.
So what do you do? You borrow more.
And viola! You are now drowning in debt.
To avoid this scenario, go back to MISTAKE #1.
Make a written budget.
Spend within your means.
If you can’t pay in cash, you can’t afford it!
Credit cards are great financial products but it depends on who is using it.
To know more about ways to maximize your credit card and not drown in debt, click this link.
If you are already drowning in debt, this I wrote an article on how you can break those shackles of debt.
To Summarize, always REMEMBER:
- Have a Written Budget
- Have a Financial Plan
- Retirement Plan
- Emergency Fund
- Insurance and Health Plan
- Don’t Go Into Debt
Your Millennial Wealth Planner,
Harold Q. Gardon, CWP, CEPP
How do you find the article? Do you have any questions? Please feel free to message me if you want me to discuss a particular topic or if you are seeking financial advice.
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