You’ve graduated! Hurray! Now what?
After slogging through years of formal education, you finally landed your first job with a proper salary. Hitting the adult milestones with steady succession, you’re well on your way on the journey towards financial independence.
As you begin earning a steady income, you’re suddenly faced with an overwhelmingly large amount of money compared to what you had whilst back in school. How do you go about allocating your monies to your “adulting” concerns sensibly? Should you pay off your debts before investing? How much should you save, and how much should you spend on insurance?
Regarding things like student loans, insurance and home ownership, you may stop in your tracks and wonder how you should move forward with your spending.
This article uses common financial goals fresh graduates have as a example on how we can prioritise our goals. Everyone has different financial situations, and varying dispositions towards saving, insurance, investing and debt, so you should tweak the framework to fit your own needs.
What are your financial to-dos?
To start off, list out your financial goals for the short term, as well as for the future. This can vary depending on your age, stage in life, current finances and future plans. You could be clearing your student loans, setting aside money for your long awaited grad trip, or even saving up for a BTO.
Try to refine your goals such that they are more detailed. Providing more detail will help you set more tangible and realistic goals, and can be tracked more easily. For example, one of your goals could be that you intend to clear your $30,000 student loan in 4 years. You will be able to better monitor your progress when the time frame is measured (4 years) as well as the amount of money you require ($30,000).
The Matrix of Decision-making
Enter the Eisenhower matrix, a diagram that helps you visualise your financial to-dos by urgency and importance. That way, you can better prioritise them, or shelve the financial to-dos that turn out to be non-essentials after all.
These quadrants depict the four categories of the matrix.
Financial goals that fall within the blue quadrant are what you consider important and urgent goals, and you should aim to accomplish them first. Getting a job, getting out of debt, and buying insurance are a few examples of what could be considered important and urgent financial to-dos.
Repaying your loans is something that is urgent, in that the faster you clear your debt, the less interest you chalk up, and the less you have to pay. It is also important because being debt-free gives you a sense of fulfilment and improves your credit score.
Important, not urgent
The green quadrant is where your important, but not urgent financial goals go. It is important not to ignore the goals in this quadrant, or to procrastinate preparing for. Set aside time to decide when you are going to accomplish these goals – they can be given a longer time frame. That’s precisely why they are not urgent goals. Goals like buying a home are important goals that may seem too far off to plan for – until the prospect of getting married comes in. You wouldn’t want a happy financial goal to slip into the important and urgent quadrant. So make it a point to plan for these goals before they progress towards the important and urgent quadrant.
Not important, urgent
Red quadrant goals that are not important, yet urgent, are goals that may hinder you from achieving your green quadrant goals, if procrastinated upon. Tasks like getting a good savings account, and a credit card that suits your needs – these are tedious things, requiring legwork on your part (to research on which bank products suit your best), but can be imperative in helping you manage both your spending and savings.
You might wonder why a grad trip falls in the red quadrant. From an objective point of view, grad trips are frivolous and arguably wholly unnecessary. However, this goal is considered urgent in that “grad trips” are best embarked upon in the time frame that sits snugly between your graduation, and the start of your work life. Granted, this may not apply to everyone, and may even be considered frivolous. Nonetheless, it is something that could be important to some of us fresh graduates, and should definitely be accounted for, especially if it commands a hefty price tag.
Not important, not urgent
The last quadrant on our matrix – the yellow, which houses our “not important, and not urgent” goals. While achieving a goal like buying the latest iPhone X may bring you a sense of fulfilment, you might want to consider how important and urgent this purchase is to you, relative to your other goals.
This matrix is an example of how I would prioritise my financial goals. Of course, things may change if you value further education more than getting a job, or if you have plans to get married in a year. Again, everyone has their own unique set of circumstances that results in very varied financial positions and stances.
Consider your existing expenditure too
Once you’ve mapped out your financial priorities, you probably have a better idea on how to prioritise them.
Now you need to take a good look at your lifestyle, and how much you need to set aside for your day-to-day spending, as well as your financial goals. Set realistic budgets for your spending and your financial obligations, such as contributing to family expenses, giving a portion of your salary to your parents and insurance premiums. After paying yourself and fulfilling your financial duties, allocate the rest of your money for savings and your financial goals.
The earlier we start, the easier it gets. Everything can compound – from bad financial planning to savings in your bank account.
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