Oct 11, 2014

Weekend Wisdom from the Ec Expert: Financial Planning


There are many harsh realities that you're hit with once you graduate:

You can't 'game' your work schedule like you could your class schedule - bye-bye, 10am day starts.

You can't stay up to all hours of the night and be fine (see above).

If you forgot to go grocery shopping, there will be no food in your kitchen. This isn't a magically self-replenishing dining hall, like you had at school.

The food mentioned above? It's expensive. Especially if you live in a major city where the supply-demand trade-off is working against you.

imageimage

It doesn't have to be that dramatic, however, if you're smart about your money! Since we could probably all use some lessons in basic personal finance, I've enlisted a finance guy to teach us the basics!

Ben Cohen was born in Washington, D.C. and majored in economics at Harvard University. He now works full-time in risk analysis and does academic research on the side. He loves science fiction, sushi, and efficient long-term investing. 

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Saving is important, right? I think everyone can agree that putting a bit away for the future is a good idea. But where do you start? IRA? 401k? Stocks? CDs? There are a lot of odd combinations of letters and numbers flying around, but there’s one thing you probably need to pay attention to first. And it’s got a pretty simple name, too.

The EMERGENCY FUND. Some prefer to call it a “rainy day” fund.


Sounds pretty dramatic, right? But it’s pretty straightforward: unexpected things do happen!

First, your income might drop.  Workers are changing jobs more often, and companies just aren’t made the way they once were. On the upside, we get to try new things! On the downside, sometimes we have to whether we want to or not…

And if that happens, it might take a little while to find your place in the working world again. Here’s where an emergency fund is handy. Your emergency fund will keep the rent or mortgage paid up, the lights on, and food on the table.

For those of us who are visual learners, an emergency fund is the financial equivalent of this guy's gymnastic skills.
On the other hand, your expenses might be higher than usual. Medical costs are a common culprit here. Unfortunately, even the “invincible millennials,” as the media likes to call the 20-somethings who opt out of all the insurance options, can still definitely run into trouble. So, you might suddenly find yourself spending a lot more money than you expected while your income has stayed the same (also really not so fun). 

Speaking of which, joining your company’s insurance plan (or an outside one from an established Fortune 500 company like Aflac), can really help protect your financial future.

Insurance can dramatically reduce the cost of healthcare and helps set up a line of defense even before you get to the emergency fund. Aflac offers additional voluntary insurance to help policyholders focus on recovery not the state of their finances (and has built a stellar reputation doing so over nearly six decades). Plus, the company's policies can also provide cash benefits to cover living expenses during covered events, giving you additional flexibility in your spending.

While it might feel a nice now to have those extra few bucks a month, you’ll be really unhappy if you end up needing that insurance after all. Talk about adding (financial) insult to injury!

huh?
Not cool, man.
As a result, experts recommend putting together an emergency fund of at least three to six months of living expenses.

The first step, of course, is to figure out how much you spend in a month!  You can do this a variety of ways, from checking the spending from your accounts to using an app like Mint (which I’ll cover in detail in a later post).  

Figure out what part of this you need to spend and what part you can cut out to reduce your spending if you have to. I’m not saying you should stick to rice and beans for three months, but it might be helpful to cut back a bit on the eating out!

Once you’ve got your target number, start putting money away! Nothing fancy here, please. A simple savings account will do just fine.

The whole point is that you probably won’t know when you’ll need to use it, so you’ll want to be able to access the money on short notice.  Get your emergency fund started and in my next post I’ll discuss another big tool in financial planning: investing for retirement.


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I was selected for this opportunity as a member of Clever Girls Collective and the content and opinions expressed here are all my own.

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