Congratulations you are on your way to graduating!
Senior Spring- Finishing up Final Exams. Writing your final paper. Planning graduation and the parties… An exciting time filled with fun and promise.
You may be pondering what is next? First, I have the perfect, albeit practical graduation gift for you. My gift to you is some pointers for getting you off on the right foot financially. Like your study habits that got you through college – better to start with good money habits with your first paycheck.
Fun Fact: Did you know that John Rockefeller started giving to charity with his first paycheck?
You can set up a system to last a lifetime. Apply your willingness to learn and try new experiences with the information below.
Listen, I know that in college you bought Ramen noodles by the case load and traveled in packs to places that offered discounts. You are excited about the option of fine dining and doing some traveling. However, do not lose sight of those thrifty skills you acquired in college. More than one recent graduate has been led astray thinking they were making the big bucks and forgetting about the financial basics before making that financial splurge. Start with a monthly overview of what you need to spend and where, rather than just collect a paycheck and spending without thinking.
First, think of your financial life in three parts: present, past, and future. All are important components of your new life. Each has several pieces that need to be addressed to adequately address your financial life.
Think Present
Safety Account
While in college, money came in and went out. All that you really needed was a checking account. You may have had a savings account attached to your checking account where you stored money you did not need immediately. Now, you also want a safety savings account for building a cash reserve. This account will grow slowly as you make contributions regularly either through direct deposit of your paycheck or a deposit in person or on-line. Think of this account as the money you fall back on when the unexpected happens and you need cash to maintain your life: a car accident or loss of job.
Not having enough cash to go out with the gang on Friday night is not cause for touching a safety account.
Have a local checking and attached savings account.
Open and fund a second savings account without ATM access for emergencies.
Renter’s Insurance
You get home after a long day at work; your laptop is not where you put it. For that matter, your new digital camera is gone. You call the police. Will you ever get your electronics back? Questionable. Who will pay for your new ones? You, unless you have renter’s insurance.
Renter’s insurance pays for your possessions if they are stolen or destroyed by fire. The policy costs just over a hundred dollars a year. You have a flash drive and a portable hard drive; they are one type of insurance, why would you not have renter’s insurance?
If you rent an apartment:
Purchase renter’s insurance – available through your local insurance agent who sells car insurance. Or ask your landlord the insurance professional they recommend.
After you pay a deductible of $250, the insurance company will reimburse you for anything stolen or damaged due to theft or fire above that amount.
The policy is available for pennies a day. Get it!
Health Insurance
You finish college and it is time to explore health insurance. Many young adults have coverage until they turn 26, others do not. If you are not covered by their health insurance. What do you do?
Learn the lingo about on the health insurance front: deductibles, pre-exsisting conditions, and premiums.
Consider a job with health benefits.
Check out your state’s health plan. Many states have coverage for the under or unemployed at discounted rates.
Consider Catastrophe Medical Insurance for in-between coverage:
Designed to cover a major accident or illness.
Temporary –usually up to three years of coverage available
Policies are inexpensive- often as low as $60 a month.
Deductibles are high- $25,000.
Minimum health insurance you need while in transition.
Think Past
Student Loans
Unless you are walking off the stage and accepting a huge signing bonus that covers your student loans, then you need to start looking at what you will be paying, what you owe, and how to make it happen. If you have no student loans, you can read on to the next section.
Your federal student loan payments may not require monthly payments until six months after graduation. If you are employed, do not wait six months to start looking at that bill. Start right away by writing a check for that amount. For the first six months, put the check in your safety account. This will help build up the safety account. Most importantly, you will not rise to a level of spending and lifestyle only to have to change it six months down the road.
Make the list of important student loan information and keep your debt information organized.
Other Loans
Line up all your paperwork on your loans. If some are in your parents’ name and you are required to pay, get that information too. Write a list of each loan, the full amount you owe, the interest rate, monthly payment and the term or time you will be paying. Having this on one page or one spreadsheet will help guide you to an understanding of your financial responsibilities. (See above)
If you are traveling, planning on graduate school or still unclear on your plans, talk to the loan company, or find out the details on the web to determine if you can defer payments, how to do it, and how long it can last. Federal loans tend to allow you to defer. Private loans often do not, so you may need to find a temporary job right away to pay the monthly loan.
Credit Cards
Be careful - there is only one entity that is getting a deal on these cards. That is the credit card company. Used wisely, these are a nice tool to have. However, no one needs more than two credit cards. And consider in our society of immediate gratification, credit cards are overused and often lead to abuse.
Get credit savvy:
Know what interest rate you are paying on your credit cards. You can find this in your statement.
Protect yourself by writing a check immediately after using the card. Taking the money out of your checkbook creates no surprises when the bill comes.
If you are already swimming in credit card debt, stop using your card. Use the steps from the student loan section above to lay out what you owe and when.
Create a plan to pay off the credit card debt you now have.
Credit Score
On a college campus, you often cannot get away with anything. There are always people around. Professors know each other and you have more dorm mates than close friends. You know news travels fast. Your credit score works the same way, someone is always watching.
Good financial actions get reported to credit reporting agencies:
Timely payments of student loans, credit card debt and car loans
Your credit history for all loans paid in the past are recorded.
Financial actions get reported and negatively affect your credit score:
Not paying the overdraft fees on your checking account
Late payments to your credit card, student loans or car loans
Financial mismanagement can work against you and gets documented on your credit report. Keep your credit score solid by being attentive to your financial life. A credit score will affect your ability to buy a house, get capital to start a business and even some offers of employment. Often, landlords use credit reports when considering you as a tenant.
You need never pay for your credit information. Your credit score is based on your credit reports. So, you need only look at your credit reports – I recommend annually. They are free for you to see and confirm they are correct. Learn more at: www.annualcreditreport.com.
Think Future:
Job Choice
Deciding on a job is a critical time. Do not forget to ask what employee benefits are provided as part of the job. The better benefit package a company offers may not make their salary look competitive. When comparing opportunities, review all aspects of what the company is offering you.
Then when you start, sign up for the benefits and take advantage of them. The benefits an employer may offer you include:
Health Insurance
Disability Insurance
Life Insurance
Retirement Investment Options
Disability Insurance
This pays you if you are off the job due to injury or illness. Some companies provide it as part of their benefit package. Some require you to pay a minimum each month to get coverage. This insurance pays you a part of your monthly salary if you are out of work due to disability.
Although this type of insurance does not seem to fit a healthy twenty-year-old, the majority of disability claims are from 25–36-year-olds. Think last time you were mountain biking, skiing through the trees, or diving. If those close calls had happened, then being out of work would cost you in more ways than one. Younger people tend to be more active, so need disability insurance too.
Life Insurance
This insurance pays an amount to someone you designate upon your death. Think about who you would benefit most from this added cash. Your best friend may come to mind. However, review your student loans. Federal student loan requirements typically stop at your death. If your parents co-signed any of them, they will be responsible for paying for the loans even after you die. Choose your beneficiary wisely.
Retirement Plan
Start funding your retirement right away. Even though you are young, this one good habit can pay off for a lifetime.
Saves income taxes.
Builds investments for your future.
Provides hands-on learning about investments.
Some companies provide a match in dollars if you contribute.
Roommates
One young client of mine could not afford a studio in Boston and still pay student loans and have discretionary money. I discussed the possibilities of roommates so she could keep her financial commitments. Sharing expenses stretches your paycheck and makes financial sense. Instead, she took a second job on weekends so she could live alone. Remember:
You always have financial options.
Take the one that works for you.
On Graduation Day, enjoy knowing you are prepared to take on your financial world. The cash that makes its way into your graduation cards can be used in multiple ways to jump start your financial life. You can start your safety account, fund your apartment’s security deposit, or pay off some debt, along with having some extra fun.
You are moving into a new world filled with fun, challenges, and opportunities. This does not carry a grade. There will be no final exams or papers. The outcome does affect your life. The financial decisions you make as you enter the post college world can make your road easier in the years ahead or trip you up a bit. Keep these financial tips handy to get started and keep your financial stash growing.