We thought it appropriate to give you 5 Financial Tips for Graduates because we know when you’re just beginning to gain your independence in the world, the thought of managing your finances is a terrifying. For most of us, our parents were there to help us along the way with paying bills, rent, and college tuition. But when graduation rolls around, the reality and panic begins to set in that you’re officially an adult. Although this is an especially difficult time for young adults, it also can be stressful on parents as you completely let go and allow your child to enter the real world. For these reasons, we thought it would be helpful to discuss 5 financial tips for graduates and their parents to feel comfortable during this life transition.
5 Financial Tips for Graduates:
- Create a Budget
Although this may seem obvious, it is extremely important, and RARELY done! This is probably the first time in your life that a large, steady paycheck is being deposited into your bank account. For this reason it can be very tempting to impulsively spend, but this is when a well-organized budget comes into play. It’s okay to treat yourself occasionally, but just remember to budget for those guilty pleasures. Even though, creating a budget may seem like a burden, there are countless resources, such as financial smart apps, to help you easily manage your budget. Using a budget now will create healthy financial habits down the road making life much easier for you.
- Start Saving for an Emergency Fund
Saving is the key to financial success, so why not get a jump-start on this at a young age? Saving is a habit and the earlier you develop this habit the better, especially due to the volatile state of our current economy. Life throws you curve balls, so it’s important to have an emergency fund. You never know when you may be laid off, are involved in a car accident, or have costly medical expenses. We suggest saving six to nine months worth of expenses into your emergency fund, so you can be prepared in the event of one of these worst-case scenarios.
- Begin Funding a Retirement Plan
You just graduated college and retirement is probably the last thing on your mind. Numerous studies show that it’s crucial to start contributing to your retirement fund as early as possible. This is definitely not the most glamorous way to use your paycheck, but it will be beneficial for you in the long run. Many employers match a portion of what you contribute to your 401k. This is an exceptional perk that employer’s offer and if yours does then take advantage of it! If you can swing it, contribute the maximum amount that they match. It’s pretty much like getting free money. You’ll be thankful you did many years down the road. If your company does not have a retirement plan, then don’t worry, you’ll just have to start an IRA.
- Start Paying off Student Loans
After four years of college, most of us will likely accrue some student loan debt. While we are of the belief that this would be considered “good” debt, if there is arguably such a thing, it’s important to understand how paying this down consistently benefits you in the long-run. We know you’ve seen them…the countless ads on your Facebook feed about student loan consolidation help and other various debt programs out there. We’ll get to the bottom of these in future posts but know that a simple phone call to your loan servicer (the company that mails you the statement) is all you’ll likely need to consolidate all of your student loans. No need to pay another company to consolidate your federal loans into private loans. There are countless options to consolidate with various terms – all designed to fit your lifestyle. How awesome is that?! Keep in mind that different loan types have varying consolidation opportunities and rules. We suggest you do whatever you can to choose a fixed rate repayment plan and make it a line-item in your budget. Try to automate the payment each month too that way you’ll help your credit score by showing consistently on-time payments. The other benefit to federal student loan debt is the debt forgiveness in the event of your death – your spouse or family won’t be liable; basically the debt will die with you.
- Protect your Credit Score
It can be tempting to swipe the credit card whenever you get the desire to make a purchase, but take caution! Be sure to pay all bills on time because even if you miss one payment your credit score could take a plunge. There are many dangers associated with poor credit that can make it difficult to get a good job or approval for an apartment lease, not to mention paying higher interest rates for years to come just because you missed a payment. To avoid these problems and to ensure a high credit score, set up automatic payments for your regular expenses, such as rent and insurance. If you can swing it, choose to use a software solution like Credit Karma to help you monitor your score and to ensure items reported to your report are accurate.
During this monumental time of your life, we want to help guide you towards financial independence. We’re a Johns Island Financial Advisor that specializes in financial planning and investment advice. We’re also pretty laid back and genuinely fun to be around, ha! Let us help you get off to the right start as you begin the next chapter of your life. Contact us today to set up a complimentary appointment.
Image Credit: Ian Norman