Whether you just set up your dorm room or grabbed your diploma, one thing is clear—the world is your oyster. As a recent high school or college graduate, you have your whole life ahead of you, and the future looks bright. 

But to ensure you achieve your financial goals, it’s important to start off on the right foot. To help, here are six recommendations you can put in place today to set yourself up for financial success. 

Recommendation #1: Understand Your Cash Flow

Understanding and managing your cash flow is possibly the most important determinant of financial success. We have worked with hundreds of clients at Lake Road Advisors, and one of the biggest keys to building wealth is living within your means and making smart cash flow decisions. 

Ironically, cash flow probably is one of the simplest aspects of your financial life. You have monthly income going in, monthly expenses going out, and the difference is either a surplus (money left over) or a deficit (spending more than you make). But despite its simplicity, cash flow is usually one of the hardest areas for people to manage. So how can you start to get a handle on it? Here are some tips.

Itemize your income: Create a complete list of all your income sources, including your salary, freelance income, rental income, and any other sources of money for one month. Babysit or mow lawns on the side? Add that in, too. For simplicity, this should be your take-home pay after taxes.

Itemize your expenses: List out and categorize your expenses into fixed and variable categories; that is, what’s consistent versus what may change. For example, your rent stays the same from month to month, but your grocery bill might change. Once you have a handle on the money that’s coming in and out, it’s time to budget. We recommend using the 50/30/20 rule for budgeting. It’s simple, easy to remember, and can keep you out of hefty debt.

With the 50/30/20 rule, 50 percent of your income should go towards fixed expenses, like utility bills, rent, and car payments. Then, 30 percent should go toward variable expenses, like dining out, entertainment, or travel expenses. Ideally, you should put the last 20 percent of your earnings into an emergency fund, short-term savings account, or an after-tax investment account. Remember, retirement may sound far away, but saving now can help you reach your goal more quickly. With the power of compounding interest, the longer your money remains in the market, the more you can earn over time. 

Finally, put technology to use: After all, you have enough to think about between college exams and landing your first job. Never forget a payment by automating your savings and investments on a monthly basis. Also, make sure to “pay your future self first,” and the leftover funds should be for your variable spending. If you’re very tech-savvy, try using an aggregation tool to track your assets, financial transactions, and cash flow. For example, Empower Personal Dashboard is one to try out and has an easy-to-use mobile app.

Recommendation #2: Set Your Cash Accounts Structure

To manage your cash well, it’s important to stay organized and structured. Here are some recommendations to keep your accounts orderly and in control:

• Checking account: Aim to keep at least one to two months’ worth of expenses in your checking account. This can give you easy access to cash to pay for immediate needs, like utilities and groceries. 

• High-yield savings (money market account): Build an emergency fund of three to six months’ worth of expenses in a high-yield savings account, such as Ally Money Market. This can help cover necessary expenses if you lose your job or have an unexpected cost, like a healthcare bill or auto repair expense.

• Short-term goal accounts: Create a separate high-yield savings account for short-term financial goals, such as a travel fund (think: your upcoming trip abroad), a house, or a new car. Ideally, these are goals you’d like to achieve within one to two years. 

Need help finding a bank? No problem. Check out Nerdwallet to see the highest yielding and rated banks compared side by side.

Recommendation #3: Build Long-Term Wealth by Investing Early

If you haven’t started investing, now’s a great time to start. Trust us, investing isn’t as intimidating as it sounds, and it’s one of the best ways to gain financial independence and wealth over time. Just be consistent and stick to it over time. Here are a few tips for doing so.

Before you start investing, be realistic about how much you can save. You may need to adjust how much you invest depending on how much you earn from year to year. One tip is to choose a percentage of your gross income to save instead of a fixed dollar amount. This can keep your savings in check with your income. We recommend saving 10 to 15 percent of your gross income, which is a great start, especially if you’re consistent and start saving early. Remember, it’s important just to start somewhere, even if it’s one to two percent of your income. You can always raise the amount in the future, but starting to invest now will make it second nature as your earnings grow.

If you earn at least $100,000, try saving even more each month (perhaps 25 percent to 40 percent of your gross income). And, if you want to retire in your 40s and 50s, you may need to stock away at least 40 percent of your gross income. 

Here are a few other helpful tips for investing wisely: 

• Go for an aggressive approach: While you’re young, choose a more aggressive asset allocation in your retirement accounts. This can leave you with greater returns long term. Remember, the market averages roughly 8% per year in the long run, so you’ll be ahead of the game and have time to recover from any losses.  
• Open a Roth 401k: Consider opening a Roth 401(k) if it’s available to you. This account offers tax-free withdrawals in retirement. And, because you’re probably in a lower tax bracket in your 20s, paying the taxes now (versus later when you are in a higher tax bracket) makes sense. Also, your investments grow tax-free over time and will provide a big source of tax-free income in retirement.

Recommendation #4: Be Wise About Student Loan Payments. 

Here’s a surprising recommendation. Even though it’s debt, you may not want to rush to pay off your student loans. It all depends on your interest rate. If your student loans have an interest rate under six percent, it’s okay to go slow and pay it over a longer period of time. Instead, invest your extra money. This can help you receive higher returns over time by leveraging the power of compound interest in your favor to build wealth! 

Recommendation #5: Monitor Your Credit Score

It’s important to check your credit score at least every year through the three major credit bureaus—TransUnion, Equifax, and Experian. Keeping your credit score in check can help you access better financial opportunities, like lower interest rates and a mortgage. Fortunately, websites such as Credit Karma and AnnualCreditReport.com can quickly and easily send you your credit score. 

The bottom line: As long as your credit score is in good shape, you can more easily obtain a mortgage and loans on a car, business, and more. This can open new (and bigger) doors for you.

Recommendation #6: Use Credit Cards, But Carefully

Credit cards aren’t such a bad thing, but it’s important to use them responsibly. In fact, we recommend getting a credit card with a reasonable limit (about 10 to 15 percent of your salary) to enjoy convenience, security, travel rewards, and even cash back. Now, before you run to sign up for shiny plastic, ask yourself about your financial discipline. Do you have what it takes to pay your statement in full each period before spending more? If the answer is no, it’s best to hold off. 

Good News: You’re Already on The Right Track

If you’ve read this far, we have great news. You’ve just taken the first step in organizing your financial wellness. Consider this article your high-level road map for achieving financial success right after high school or college graduation. If you can start organizing your cash flow, setting up a structured cash account system, investing wisely, and more, you’ll be on the path to growing your wealth before you know it. 

Remember, it’s a marathon, not a sprint. There will be bumps in the road, especially in your 20s. Just stay committed, and with time, consistency, and smart financial decisions, you can enjoy greater wealth and achieve your goals. 

Lake Road Advisors, a Fee-Only, independent financial planning firm with offices in Corning, NY, Ithaca, NY and Portland, OR works with clients virtually all across the country. Paul Sydlansky, the founder of Lake Road Advisors LLC, has worked in the financial services industry for 20+ years. Prior to founding Lake Road Advisors, Paul worked at Morgan Stanley in Manhattan for 13 years. While at Morgan Stanley, Paul was a senior-level manager within the Institutional Equities Department. In 2018 he was named to Investopedia’s Top 100 Financial Advisors list. Paul received a Bachelor’s degree in Economics from Marist College and holds an MBA from New York University Leonard N. Stern School of Business. Paul is a CERTIFIED FINANCIAL PLANNER™ and a member of the National Association of Personal Financial Advisors (NAPFA) and the XY Planning Network. They can be reached by phone at the Corning, NY office at (607) 438-2914, Ithaca, NY office at (607) 463-8400, or Portland, OR office at (607) 292-2172 or at the firm’s website at https://lakeroadadvisors.com/

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.