As graduation times are upon us, we reflect on some of the guidance we were given at our own time of commencements. The graduates that will be filling our workforce in the near future will be faced with investment decisions that many of them may never have come across before. Having a conversation about a few standard items can be crucial to helping this crop of graduates start off on the right foot. It would be easy to give hundreds of pages of advice. Below we have compiled three items that each warrants a conversation as a starting point.
- Setting a monthly budget: Receiving a paycheck is an exciting event, and one that comes with responsibility. Sitting down and compiling a list of expenses such as rent, car, gas, utilities, savings, entertainment, etc. is the first step to create a budget. The money that comes in should not be exceeded by the money that is paid out. This simple concept may be second nature to some of us, but to our graduates, they are generally not accustomed to be the ones keeping track of this flow. Finding a balance of fun and responsibility can be achieved by taking this initial step, saving a little bit each paycheck can go a long way, especially at a young age.
- Retirement savings through company plans: Employees at their first job may not know the questions to ask when it comes to company retirement plans. New employees should ask if there is a company retirement plan and when they can start investing. There can be a time period an employee needs to be working for their company before they are eligible to do so. Other important question to ask is do companies match retirement plan contribution and to find out what investment choices are in the retirement account.
- With a paycheck come taxes: There’s a joke in the financial world that you cannot guarantee anything except death and taxes. Unfortunately taxes usually accompany a paycheck and both Federal and State taxes need to be paid. There can also be other items taken out of a paycheck like Social Security, and in some cases health care. A good practice can be to print out the record of where each dollar goes from each check, and discuss where each dollar goes in an effort to help see the difference between their salary and what their take home pay is, this difference can be a shock.
Life allows us all to learn as we go, although we will not always have the answers to the questions. You do not have to know everything; you just have to know how to find everything. Utilizing human resource department in a company is a viable plan, and it should be encouraged to ask questions. Co-workers and management teams can be helpful as well. If you do not know what questions to ask, a great starting point is to ask what are the most frequently asked questions, and follow that up with “is there anything else I am not asking that I should have?”