Financial Perspectives: Get off to a good start after graduation

It is graduation season with thousands of kids graduating from local colleges and universities. Many will be starting their new lives with a significant amount of debt.

Long-term financial success is not assured through securing a college degree, but sound planning immediately after graduation can put you in a better position. Here are a few tips that you can pass along to the graduate in your life.

Pay Yourself First

Planning for your future will take money. Try to set aside 20 percent of your gross pay through an automatic investment plan. This will seem like a lot, but you will be thankful that you did. You first want to contribute to your company’s retirement plan – at least up to the point of the company match. Then, contribute to a Roth IRA ($5,000 is the limit for 2011) and any residual money can go into a brokerage account.

Before you begin your investment program, I recommend that you put aside three to six months’ worth of living expenses into an emergency account. This type of account will prove very valuable if you need to make an expensive car repair, fix something in your house or cover your expenses if you get laid off.

Do Not Use Credit Cards

This is probably the single biggest area of risk not just for young people, but for all people. Over the years I have talked with many people throughout the Northeast who are saddled with tremendous amounts of credit card debt. Many of these people earn very good salaries, but are unable to save money because of the large monthly payments they are making to their credit cards.

If you cannot afford to buy something in cash you probably should not be buying it. Also, if you can continue to use the used car you have been driving, I strongly recommend keeping it as long as you. Cars are depreciating assets – meaning they lose value over time – and in many cases they lose $1,500 to $2,000 the minute you drive them off the lot.

Purchase Life Insurance While You Are Young and Healthy

Life insurance only gets more expensive with time. This is especially important if you are considering marriage. You can purchase a 30-year term policy at a relatively low cost. You can certainly buy more over time if you have children, etc., but it would be very wise to start with a base policy now.

Disability Insurance is Important Too

Many people discount the need for disability insurance. This type of insurance can replace a certain percentage of your income if you were in an accident or got sick. You are young and may think that things may not happen to you. Think about it.

I am sure you can recall at least one family member or friend who was hurt in a car accident that resulted in them missing work for an extended period of time. Without this type of insurance you may not have any income coming in. Most employers offer this type of coverage as part of their benefits package. Take advantage of it.

If you follow these simple steps you will set your financial ship in the right direction. That means affording the nice house, financing your kids’ college education and ultimately retiring. Enjoy this time you only live once, but do not do it at the expense of your future. Best wishes for a wonderful life.

Jim Heisler is a Certified Financial Planner with Family Wealth Services in Holmesburg. You can read all his Financial Perspective columns here.

Registered Representative, Securities offered through Cambridge Investment Research, Inc., A Broker/Dealer, Member FINRA/SIPC and Investment Advisor Representative, Cambridge Investment Research Advisors, Inc. a Registered Investment Advisor.  Family Wealth Services, LLC and Cambridge are not affiliated.

Jim Heisler, CFP®, CDFA™, CASL™ Family Wealth Services, LLC is located at 8275 Frankford Ave. (215-332-4968)

The views expressed are not necessarily those of Cambridge and should not be construed as an offer to buy or sell any security. These situations are hypothetical in nature and do not represent a specific client.