10 Money Tips for College Grads
1. Invest for retirement right away by fully matching your employer’s retirement plan
- Explore the magic of compounding by calculating what would happen if you invested $10 a day ($3,650 a year) beginning at age 22, earning the market average of 7%.
- Be alarmed by what happens if you invest and earn the same amount but wait until you are 35 to begin to invest.
- Get motivated by the returns you would experience by contributing 5% of your income beginning at age 22, and benefiting from a matching contribution of an additional 5% of free money from your employer earning the market average of 7%. The free money match is the greatest advantage of a 401(k) or 403(b).
- Use this handy list of questions when interviewing financial planners. Above all, make sure your financial planner adheres to the fiduciary standard, legally binding them to put your best interest ahead of their own.
- To learn more, have a peek at the Department of Labor new job Entrants guide.
2. Get organized and stay motivated
- Get a quick and free money checkup with the National Foundation for Credit Counseling.
- Track your spending using online or mobile technology tools.
- Establish a budget.
- Engage in strategies such as the America Saves Pledge and text campaign that will get you and keep you motivated.
3. Save for emergencies and future opportunities right away by setting up a direct deposit [split deposit] into checking, saving, and retirement
- The most effective way to pay yourself first is with direct deposit. Put your savings deposit into a separate bank or credit union so it’s harder to transfer the money into checking.
- Deposits into checking should be significant enough that you should only have to dip into saving when you reach your savings goal, or for emergencies.
- Most people receive two extra bi-weekly paychecks a year. Save them as well until you’ve saved 6 months of expenses for emergencies. If you can, save bonuses and cost of living adjustments early in your career. America Saves has lots of other savings tips.
- Don’t touch your retirement unless you’re 59½.
4. Rent [or mortgage payments] should be easy to afford
- Buying a home can be a lot easier than selling a home. So be sure about your decision.
- Whether you rent or buy, strive to keep your housing costs, including utilities, below 25% of your net pay. This will free up money to save, invest, and enjoy the life experiences you only have one chance to experience while you’re still young and single. Yes, research has found that for most people experiences make us happier than possessions.
5. Pay for your next car with cash [if you can].
- A car payment, and the comprehensive insurance you’re mandated to have by your lender if you’re making payments, can be the obstacle that stands in your way of your first home, a vacation with your friends, or the savings that you need. Keep the cost of your car minimal, particularly early in you life.
- Explore the True Cost to Own Calculator to see for yourself the true cost of owning a car. The calculator factors in considerations such as depreciation, interest payments, and gas. By the way, there is no tax benefit to borrowing money to buy a car like there is a home.
6. Pay off any high interest debt as fast as possible
- Input whatever debt you have to see how long it will take to pay if off. Change the interest rates, and notice how expensive it is for you to pay off high interest debt slowly, over time.
- Take the time to understand your student loan repayment options. You may even qualify for forgiveness programs.
- If you’ve already incurred a lot of debt, take the time to read and understand how to work your way out of it.
7. Insure yourself, and your stuff
- Get disability insurance right away. 3 in 10 workers need disability insurance at some point in their career. Early in your career, any Social Security that you qualify for, if you qualify for any at all, will be insignificant. Your employer may offer this, so check with them.
- Understand your health care options, and begin saving to fund your own Health Savings Account (HSA). Companies are quickly transitioning into these types of plans from traditional HMOs and PPOs.
- Protect your belongings with renters insurance if you rent. It’s affordable. Obviously, homeowners insurance is essential if you decide to buy your first home.
8. Protect your financial reputation
- Check your credit report for free, at least once a year, at annualcreditreport.com
- Your credit impacts the cost of borrowing, the likelihood of whether you will get a loan, the cost of insurance, and can even impact the chances of you getting a job.
- Building your credit score takes time. You can make progress if over the next few years you focus on doing the following three things:
- Pay every bill in full and on time
- Use your credit card to help build your credit score. Borrow no more than 30% [ideally 10%] of the credit limit each billing cycle and always pay the full balance prior to the due date [Remember, you’re trying to build a credit history so don’t unnecessarily close your account]
- Don’t overextend yourself using any type of credit [auto, mortgage, credit card, etc.]
9. Turn your phone into a financial tool
- Sign up for text alerts from your bank or credit union notifying you when your balances approach minimum balance requirements.
- Use mobile banking services to check your account balance before making a big purchase to avoid costly overdraft fees.
- Use free applications like Red Laser to comparison shop prior to making a big purchase.
- Take the time to read safety tips on how to use mobile apps safely.
10. Protect your digital reputation
- Keep in mind that it’s easier to manage the money you have when you have more of it, so don’t neglect the income side of your personal finances. Make yourself more employable.
- Google yourself. Chances are, your future employer may Google you before hiring you. If needed, take the time to clean up your reputation… a.k.a. any social media blunders. Onguardonline.gov is a great resource to help keep you safe online.
- Create two LinkedIn accounts. One account is for the world to see. Keep it up to date and public. The other account is private, only for you to see, and it should reflect where you want to be professionally in 20 years. See your success and work to become it.