The other day, I randomly ended up deep in conversation with these two university students in their early 20s. They were talking about opening bottles and clubbing 3 times a week. My friend, a sage 30-year-old, bestowed upon them the following advice: “Save your money. So one day when you’re in the workforce and you hate your boss, you can tell him to *** off.” The two boys laughed. They didn’t think that would happen to them, ever.
Even if you have no intention of giving your future boss the finger (and as a bright-eyed bushy tailed fresh grad, you have no idea), if you’re smart you’ll start getting your finances in order now, before life starts piling financial obligations on you. Here’s how to navigate the first year out of university.
1. Automate savings no matter how low your starting pay is
When you land your first job, you might be disappointed to discover that despite your fancy degree, you’re earning just enough to survive on. Believe me, I know, because my first year after uni I was earning $1,300 a month. But don’t make the mistake of assuming you can wait for your pay to increase before your start saving.
While forced savings may not be necessary if you’re earning a decent sum, it’s absolutely necessary when your salary is low and your finances are tight. Buying one work shirt too many, or going out one extra night in a month, can be the difference between adding to your emergency fund and having nothing till your next paycheck.
The easiest way to simplify the process is to open a separate account for savings, and then automate the transfer of a set amount of money each month from your main account to that account. Call up your bank if you have no idea how that’s done.
Also, from now till 31st December 2016, if you started your first job this year and your salary is going into a DBS/POSB account, you might be able to earn up to $100. Just register for the DBS First Jobber promotion before the end of the year.
2. Use a budgeting app to track your spending as you enter the working world
Once you leave university, your spending patterns are going to go through tremendous change. Many people just unconsciously make the transition and then years later realise they’ve been wasting too much money on expensive office lunches, cab rides to and from work and after-work functions.
You should ideally start tracking your spending using a savings app even before you graduate, so you can keep tabs on how much lifestyle inflation is happening once you become a working adult. While a bit of lifestyle inflation is inevitable, you want to keep your feet on the ground and make sure you’re not overdoing things.
Try the You Need a Budget (YNAB) app for iPhone and Android or Dollarbird if you want to create a detailed budget, or Wally if you just want to focus on tracking your spending.
3. Start building an emergency fund
Most university students have no idea what an emergency fund is, because their parents are basically their emergency funds. But when you’re working, running into money woes in an emergency could mean falling into credit card debt. This means you need an emergency fund the moment you’re cut loose from mum and dad’s apron strings.
Your emergency fund is a sum of money that sits in a savings account and doesn’t get touched until you absolutely need it. You first need to determine exactly how big your emergency fund needs to be—if you have a stable job, the usual recommended amount is 3-6 months’ worth of monthly expenses, while those who are self-employed or business owners might need up to 12 months. So if you spend $1,000 a month, an emergency fund worth 6 months’ worth of expenses would be $6,000.
Now, you don’t need superpowers to pull this off. Saving up an emergency fund is no different from amassing regular savings. If you’ve already set up an automated savings arrangement (see above), the first few months’ worth of savings will automatically go to your emergency fund. You can start a different pool of savings after you’ve built up your savings fund to the desired amount.
4. Do research on your first insurance plan the easy way
Your only brush with insurance as a student might have been those boring insurance modules at university. But now you need to come to terms with the fact that without insurance, a single accident or illness can transform you from an eager young graduate ready to make his mark in the world to a bankrupt. Yes, we don’t like to use the B-word, but it’s true.
While you might be tempted to assume the only way is to contact an insurance advisor, be wary of the fact that insurance advisors attached to a particular insurance agency will only be able to sell you products from their companies.
Are you a fresh grad? Let us know what money issues you’re facing in the comments!