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Helping College Graduates Reach Financial Independence

Financial independence“The secret of getting ahead is getting started.” –Mark Twain

Ironically, the knowledge college students gain while studying for their careers is only one aspect of the education they’ll need to succeed in securing a healthy financial future for themselves. Learning how best to manage their finances and make wise decisions requires both individual effort and solid expert advice. That is where CPAs can serve as educators to help their clients – the parents – share tools with their recent college graduates to help them achieve financial success.

Getting started can seem overwhelming, but having an accurate idea of how much it costs a recent graduate to live monthly or annually is an essential first step. Suggesting clients’ children use simple money-tracking apps such as the one available at mint.com, where individuals can examine every aspect of their financial life in one place, can be helpful. After entering some basic information about their income and expenses, users can get a quick overview of their overall financial health.

Once a client’s child has an accurate overview of their financial situation, helping them plan how to expand their knowledge and grow wealth by weighing options that balance wants and needs with their long-term financial priorities is essential. Encouraging automatic monthly transfers to a savings account, or dedicating as much income as possible into employer-matched 401ks, IRAs, 529 plans, and even HSAs, are all beneficial to a young professional’s financial security moving forward.

In case of emergency: Have a wish fund

We’ve all heard varying advice (and likely given it, as well) about how much we should have saved for the proverbial rainy day. Some say having three to six months-worth of living expenses in reserve is good. The trouble with this advice is that recent graduates don’t see the immediate payoff.

Clients’ children may be more motivated to implement a strong savings plan if they’re encouraged to think about things they would like to experience in their lives – like the dream trip they’ve always wanted to take or that house they’d like to purchase one day. Urging graduates to be financially ready to seize those opportunities is a fantastic way to help them gain perspective on the importance of careful planning when it comes to saving and investing their money.

Overcoming debt and managing spending

Saving as much of what we earn for the future is one side of the coin; deciding where to spend it is the other. Paying down consumer debt like credit cards should usually come first, followed closely by repaying any outstanding student loans. While establishing some positive credit history is essential, taking on too much debt can set off a cycle of over-extending and then struggling to catch up as interest and payments mount. This snowball effect can stunt financial growth for years, so it’s vital to help clients find ways of looking at the bigger picture and acting accordingly.

The best investment may be YOU

Investing in continuing education and advanced degrees is never bad advice. If an individual has opportunities to expand their credentials, they’re sure to also expand their long-term financial prospects. Knowledge is power. And there’s perhaps no better way to help recent college graduates establish financial independence and economic security than educating them thoroughly about the world of options and tools at their disposal to build a sensible, productive financial future. They – and their parents – will thank you for it.

Expert Brooke Salvini, CPA/PFS, has built on this subject by creating a checklist for CPAs to give to clients who have recent college graduates. The AICPA’s Personal Financial Planning Division has made this checklist available here

Chris Benson, CPA/PFS, tax and financial planning services at L.K. Benson & Co. Chris has played an active role in developing resources for the AICPA’s Personal Financial Planning division and engaging with the Young CPA community. He holds a master’s in Taxation from the University of Baltimore.

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