More financial advice for graduates
In my column of July 8, 2012, I suggested to graduates that they make a budget, be frugal in spending, put a retirement plan in place, educate themselves about financial matters and avoid debt.
This advice is still relevant to the many recent graduates of tertiary institutions but I would like to give some additional advice.
Let me say as clearly as I can that, like everybody else, graduates should learn to live within their means. Although some persons spend in a way that makes it obvious that they are overreaching themselves, there are others who do so without immediately noticing what is happening.
This may take the form of small, frequent overexpenditure or using short-term credit which may be repaid, sometimes on time but late at other times.
Situations that creep can be very dangerous because they tend not to be noticed until they have got out of hand. Budgeting is the best tool to keep this problem away.
Developing the savings habit is a sure way to build a sound financial future. It is true that the returns on savings are
minimal but it is also
true that the commercial banking system is not the only depository for
Money market unit trusts are a good alternative. Budgeting can be a useful tool for boosting savings, so I recommend it.
The earlier savings start, the better, as the power of compounding is better able to show its benefits and the greater the pool of funds that can be
generated for investment.
Savings are important to generate funds to meet such needs as the provision of shelter, retirement and further education or the education of children.
Saving early and systematically reduces the need to find large sums close to the time when important needs are to be met.
Develop the habit of diversifying investments to spread risk but also to enhance the prospects of getting reasonable returns. With a good understanding of how the markets operate, it may even make sense to invest in instruments that have the capacity to generate capital growth.
It is important to develop the habit of keeping good records – relating to taxes, insurance, bills, titles of assets and loans. It requires some effort at the outset to establish a reliable system but using technology can go a far way in saving time and improving reliability.
Many graduates will face one or both of the challenges of the repayment of students’ loans and difficulty in finding a job.
Both of these challenges can stymie any effort to build a solid financial base. Graduates who are successful in gaining employment should still make an effort to develop the savings habit, high debt-servicing costs notwithstanding.
Additionally, when a job becomes available, it makes sense to take it even if it is not the ideal job. The best way to get a job is to have a job is a common saying which has merit.
Graduates need to have a personal plan supported by a financial plan to guide their lives and decision making. Circumstances may make it necessary to
make changes but that is quite acceptable.
Tough decisions may have to be made about where to work or live, as well as about family, but having a plan can help to ease the pressure of coping.
As a blueprint, it can serve a useful purpose in guiding
present and future actions.
n Oran A. Hall, a member of the Caribbean Financial Planning Association and principal author of ‘The Handbook of Personal Financial Planning’, offers personal financial planning advice and counsel.