Can you honestly say you have a “money plan” after you get that diploma?
No matter what your life or income situation is, it’s important to get started on the right foot. Before you can learn how to Untemplate, you need to discover the basic principles of personal finance. Don’t worry, it’s so much easier than it sounds.
Take an entire month to do each of the following steps. In one year flat, you’ll have the foundation for the rest of your successful financial life. My descriptions are brief, but a simple Google of what I’m talking about will yield you hundreds of resources.
Let’s go:
Month 1: Organization, Accounts & Floating
“Floating,” or things you must do to avoid killing your finances while you figure the rest of this stuff out. A big example is making sure all your bills get paid on time. To do that, you need to get financially organized. Get a file, set a place aside at home–whatever you need to do to stay on top of things. Go open a checking and savings account.
Month 2: Systems
Once your basic organization is in place, decide on the systems you’ll use to track your money. No worries…if you pick one you don’t like, it’s easy to change your mind. Go with low-cost systems initially, from free (like Mint.com) to $30-$50 (like Quicken or You Need a Budget).
Month 3: Basic Principles
By now, you should be tracking what’s coming in and going out on a monthly basis. Take the third month to learn as much as you can about basic money management. There are certain principles which are tried and true–“spend less than you earn” and the concept of balance in almost everything you do are ultra-important.
Month 4: Student Loans
Most student loans will let you avoid payments for six months after graduation. Month 4 is the time to start thinking about them. That means either preparing to pay each loan, or consolidating with a single lender. Consolidation carries some benefits–a single payment, and the ability to extend and customize the loans.
Month 5: Monitoring
You’re already tracking income and expenses, but this is month to start using your systems software to its fullest potential. Analyze the charts and observe month-to-month trends.
Month 6: Budgeting & Frugality
You need to set up a budget–and it’s not the end of the world. There are two approaches to budgeting–traditional “limit” budgets, and envelope budgets. Either way, you’ll most likely find that you don’t make enough to support what you want to do. Learn all you can about frugality–how to make your dollar go further.
Month 7: Short-Range Planning
By month 6, your basics are in place and you can think ahead. Begin with short-range planning–this includes immediate savings goals (that trip next fall), irregular expenses, and boring stuff like tax planning (yes, refunds are not a guaranteed fact of life).
Month 8: Net Worth (Liabilities and Assets)
A good starting point for evaluating your month-to-month and year-to-year financial progress is to get a baseline net worth figured out. Don’t worry if it’s negative–student loans tend to make a big initial drag on your worth. Work on getting the number higher every month.
Month 9: Credit & Loans/Credit Score/Credit Report
Before you make any big purchases, it’s time to learn about credit–how to get it, how it affects your money, and how to use it responsibly. While you’re at it, get a free copy of your credit report and your credit score. Read about what affects your credit, and how you can work to improve it. Protect yourself from identity theft! Make sure to cancel before the grace period is over if you don’t want to pay for credit monitoring.
Month 10: Insurance
It might seem silly to worry about what “might” happen when you’re young and invincible. But when it comes to insurance, it’s not always what you do, but the actions of others as well. Look into complete auto insurance, disability insurance, renter’s insurance, and even life insurance if warranted.
Month 11: Income Planning & Career Management
The days of working for the same employer for 35 years are pretty much over. You’ll need to plan out your potential career moves, and have a “plan B” in case things don’t work out as planned. What income levels are you looking for now, and through the future? Will you need certifications and training classes? What will it take to get there?
Month 12: Long-Range Planning
The last month is all about you--what you want to do with the rest of your life and how money will play a role. How expensive are your major life goals? Are you thinking about (gulp!) retirement? Have you ever tried writing a financial mission statement?
Ready…Set…
Whew! This should lay out a great framework for a year-long process of learning about money. Don’t be afraid to use it as a rough guide and explore each month’s topic in your own way. Have faith in your own ability to grasp the basics of money!
This is great advice for recent college graduates! When we’re just out of college it can feel like we have forever to pay student loan debt off and get ready for life – until the late 20′s and up hit and you wonder what you were thinking! More people should be reaching out to students and soon-to-be graduates like this so they can understand how important it is to take control of their finances now!
I like the idea of assigning one financial task per month. NIce and simple! Most people do not stick with a plan because it gets too complicated.
I really needed this post when I was younger. I had this view of money in college that denial was a great principle to live by. I worked, but I really didn’t understand what it was all towards. Great post!
Great post, I like the idea of breaking personal finance goals into months, that makes recent grands (and young people in general) more prone to follow through. I would add two things:
(1) Month 3 could include saving for an emergency fund. That way, when an emergency comes up, the recent grad doesn’t have to put it on a credit card. You can learn more about emergency funds here: http://www.bitesizeidea.com/bsi/how-to-destroy-murphys-law-with-an-emergency-fund
(2) Month 4 could include a plan for debt repayment without consolidation. My favorite method is called the debt snowball. I have found it to be the best way, psychologically and dollar-wise, to quickly pay down debt. I explain it in detail here: http://www.bitesizeidea.com/bsi/how-to-snowball-debt-till-its-gone
Thanks again for the post, as I prepare to graduate college, it gives me a road map for my financial future.
I’d like to bring to everyone’s attention a book that Trent at The Simple Dollar reviewed last week. It takes a similar one-year approach to financial education:
Review: One Year to an Organized Financial Life
http://www.thesimpledollar.com/2010/01/24/review-one-year-to-an-organized-financial-life/
Just wondering, how is the job market for undergrads nowadays? Are things getting bette?
I think it depends on the industry. For example, construction/design (where I work), even if we WERE to re-hire, we would start with the talent we had to lay off first. So new grads coming out of school have been, and are going to be out of luck for the next few years.
I’m graduating in April with a degree in Management Information Systems, and was lucky enough (after months of applications and only a few interviews) to find a full-time position before I graduate. The market is tight and competition between grads is high. My career counselor said that hiring in my field was down about 10% from normal. He also said that fields like finance were down 60%.
I’m considering getting Quicken after being fed up with Mint for too long. If I sign in and see 1 more yellow triangle box with an exclamation inside of it I’m going to throw my computer out the window. ING hates Mint and it’s just too difficult.
On a more positive note, this post can be used for any twenty-something who is struggling with money, life, and guidance. Solid advice.
– Austin @ Foreigner’s Finances
I’m not a client of Mint’s, but the friends and colleagues who use it swear by it. Unfortunately, it just doesn’t do what I need it to, and like you, there are just too many things that bother me with the interface.
This is good advice for anyone. In fact, one might do it yearly.
Not a bad idea! Reviewing everything on a yearly cycle once it’s set up would be very beneficial. It’s easy enough to set reminders for yourself if you use a task system.
This article doesn’t just apply to recent college grads. I think it applies to anyone who deals with money! You can learn (or teach them if you have ’em) about budgeting, savings, financial basics, short and long-range planning when you’re a kid. Once you start dealing with money, that’s when it is time to start learning about it.
I shudder to think of how much potential (financially speaking) I wasted as a teenager.
You’re absolutely right! I took a post-college approach because that’s when many people starting thinking about their money in “oh crap, I have bills to pay” terms…until then, it’s often just fun and games.
But the earlier you can learn some of this stuff, the better. Case in point, I had my first bank account at 16 and was getting the hang of some of this stuff.
Tyler,
Thank you for your comment, I appreciate feedback in any form. You bring up a lot of points, so let me see if I can address them individually:
“It’s ridiculous how a site called “untemplater” with a supposed focus on bucking the norm assumes that everyone should go to college and get a degree.”
Admittedly, and through no fault of the site’s founders, this post was written prior to the site’s launch, and when my only understanding of the site’s concept was a Generation Y-approach. So while that’s what this post was based on, and in this case assumed a post-college situation, Untemplating is something I will write more about in the future.
““a simple Google of what I’m talking about will yield you hundreds of resources”
No it wont. Googling “systems” doesn’t find mint.com, nor does this work for most of your other categories.”
No, but Googling “how to track finances” will find relevant information. I think the people reading this site deserve much more credit in being able to find what they’re looking for, rather than just searching for my sub-headings.
““‘Floating,’ or things you must do to avoid killing your finances while you figure the rest of this stuff out.”
That’s not even a sentence. There’s no verb.”
The more I write online, the more conversational my tone gets. Convincing you of the fact that 99% of my peers consider me the best writer among them probably won’t get me anywhere, but I can tell you that my online tone won’t change. Oh well…
“Aside from the lousy writing, the article is horribly thought out. You’re giving people a *year* worth of work with a page of vague instructions. If you were a school teacher and you presented this to your principal as a lesson plan for an entire year, that it would be accepted?”
I don’t think most people can accomplish this in anything less than a year. Heck, for most, it takes decades to figure this stuff out. This is nothing more than a framework to build from…and could have easily been a 12-month series. It’s up to individuals how they use it.
“Do you honestly think a single person is going to follow through with this advice after reading this article, that in November someone’s going to come back and look at the page they printed and hung on there wall and think “time to look at insurance”?”
I intended the article to be used as a launching-point/blueprint and I think it can be used that way successfully. That doesn’t mean someone can’t do month 12 before month 11. It’s just one way of looking at a systematic way of establishing your financial foothold.
“Even if they did, they wouldn’t get anything out of this article itself, because it has no substance. The “insurance” section simply lists types of insurance, it contains no info at all.”
Unfortunately, due to the nature of the site and how concise posts must be, I had to leave off many of the details and present a 12-step plan in a very, VERY short form. I can, and have, written many long posts about each individual topic ad nauseum, and therefore directed everyone to search for more information based on this framework.
“I wanted to like this site, but I’m finding it tough. Too many of the articles are just bad. The signal to noise ratio is too low.”
Again, I’m sorry you feel that way. Hopefully, I’ve shown you some of my reasoning behind this post and you’ll stick around to read more.
And once again, an honest thank-you for the critique. It’s the only way we get better. 🙂
With or without a deeper amount of information in the article, I don’t think that accomplishing Wojciech’s 12-step plan in 12 months is remotely out of the question for anyone – college grad or not.
Really, I’d prefer to see college students getting this stuff done in the first 30 days after graduation, or someone newly unemployed doing this in the first 30 days following termination. None of it is rocket science, and most of it can be done in your PJs.
Your point is well-taken: my thinking is that most people will simply be unmotivated to get it done any faster than that pace. (i.e. when I said “I don’t think most people can accomplish this in anything less than a year.”)
On some things (like monitoring, for example), letter things fester and patterns emerge might be beneficial. Other items could probably be knocked out in a few days.
Nice post. I think all too often parents don’t provide the necessary guidance, when it comes to personal finance and many are left to “figure it out” on their own after graduating college. Your 12-step plan breaks down goals into a month-by-month basis, that allow for very achievable results.
You have some great tips and may I add that Mint.com is GREAT! =)
Thanks Andrea! Figuring it out is unfortunately how most of us have gotten a grip on our finances; too often after many mistakes. Hopefully we can change that!
All to true. I’d probably be like mega wealthy if I had applied some of this when I was 19. The very first job I ever got was very high paying, and all I did was blow every dime and accumulate a bunch of debt, and then that job vaporized I was in a deep hole.
I had to dig myself out on a much smaller income after that. Can’t change the past, but I always think about how I could of invested that money. Great post, personal fiance is a passion of mine too, and I really want to be able to share some of my experience with young people, but I’m still learning myself. I can have a lot of “how not to do it” to offer, lol.
You are right in that way too many parents seem to take a reactive approach to financial education in their kids lives. I wrote a guest article a while back over on Money Ning about why I will definitely give my kids a credit card early in their teen years so that I can proactively teach them how to use their credit cards responsibly just like I will teach them how to set up a savings account, learn how compound interest works, etc. etc.
Mint.com is awesome.
As always – planning and systems FTW!
Like Hugh mentions about financially ignorant people, Robert Kiyosaki talks about Financial IQs, and how people are scared to deal with their finances, thus lowering their Financial IQs. Like Ben mentions – Own it.
My wife was scared of handling money for the longest time, mostly because she didn’t understand it. Breaking down the concepts to their simplest forms and creating systems that were easy for her to use were both critical in getting her warmed up to effective money management.
Mint.com is definitely an awesome service. I love how it pulls everything in from all of my various accounts and cards and lets me track everything on an aggregate level.
This is a great point. I graduated from a good university with a degree in finance, but I never put a plan into place like this. It was always a do-it-as-you-go sort of thing. I took heaps of finance courses in college, but never one about personal finance and how to set yourself up in the real world. Personally, I very strongly think a personal finance course should be something that is taught in all high schools. The recent economic downturn and the exposure of so many financially responsible people is living proof of this. It’s not that people are stupid; it’s that most are financially ignorant. And we’ve learned that financially ignorant people don’t live in a bubble. What they do affects everyone.
There’s a big push for that kind of education, and many municipalities either already have something like this, or are realizing quickly that they need to.
I’m also in the camp that learned as I went, but I think an understanding (or at the very least–an exposure) to the basic concepts of personal finance is necessary for anyone dealing with money–so if you have a part-time job, basically 16 years old and up. It’s never too early to start learning. 🙂
I love your point about not being in a bubble. Too many times, our excuse for doing/not doing something is “because I can.” We forget how things trickle down…
I really like your method of breaking down the big financial picture into monthly actionable steps. Too many people (myself included) feel overwhelmed by the amount of responsibility thrust on you upon exiting college. I wish I had been looking at financial advice like this back then. It would have saved me from a year of living the free-wheeling consumeristic lifestyle drove my net worth in the wrong direction.
Couple of personal thoughts on your monthly activities:
1. Look for a Rewards checking and high-yield (often found online) savings account.
2. I’ve been using Mint.com for over 6 months and absolutely love it.
3. Look for online souces like getrichslowly.com and use your local library system.
4. Consolidation can get great but watch out for scammers. I used Student Assistance Foundation and their customer service has been amazing.
5. Do your own expense categorizing. Its cool that programs like Mint and Quicken do it for you, but if you REALLY want to know where your money is going touch EVERY transaction.
6. Budget, spending plan, whatever you want to call it get one! Find a method that works for you. Frugality can be a blast. Learn to cook for yourself. Eating out is a HUGE money sink.
7. Your car WILL need work. You WILL have to pay an insurance deductible. Things happen. If you’re getting a tax refund, you need to adjust your withholding and stop giving Uncle Sam an interest-free year-long loan.
8. Your net worth is your measure for overall fiscal fitness. Pay close attention to it.
9. Get your free credit report every year. Don’t be fooled by the scamming yahoos on TV advertising “free”creditreport.com. Go to the link Woj gave. Its the legit one.
10. Insurance isn’t sexy until it saves your butt. Learn the basics, then find an agent you feel you can trust to help with the details. Start with lower deductibles for auto (~$500) until you have some savings. Once savings are established, increase deductibles to lower your monthly payment.
11. No one will care about your money or your future as much as you will. Own it.
12. “Retirement” as we have known it for the past half century or more is quickly becoming antiquated. See #11 and start working on your plan.
Thanks for such an in-depth comment, Ben. I think your points on food & eating out are very important. For us, this was a huge sink for about 5 years, and we couldn’t stop ourselves. It’s basically what made or broke the budget every month.
#10 is a tough catch-22 because higher insurance premiums translate to a slower savings rate, but I think the approach you gave is the best and safest one.
Also, one small correction re: #3, it’s getrichslowly.ORG. 🙂
Totally agree and can relate on the eating out. For two people not eating fast food you’re probably averaging from $20-40/meal depending on your restaurant of choice. My fiance and I fell into this trap as well our first year out of college after landing our first jobs. What else do you do with all that money right? Lifestyle inflation can be a sneaky SOB.
Unfortunately insurance is a necessity unless you have enough assets to effectively insure yourself at which point the cost of premiums are mostly irrelevant. The best we can do is minimize the dent it makes in our monthly budget, hope that we never have to cash in, and remember to be thankful for making the investment in the event that we do.
I hope JD doesn’t see that blunder. >_< I've only been reading his site for over a year. That's what I get for trying to rush out my comment before heading to my hamster wheel (aka cubicle nation). Thanks for the catch and correction!