Money Tips for Real Life

Congratulations, you’re a college graduate! With all the excitement surrounding getting your degree and trying to land your first “real” job, you may not have had time to think about how your finances will change now that you’re on your own. Navigating the jungle of personal and financial independence can be a little daunting, so here are some tips to help make the transition easier.

1. Gather your papers

While this sounds simple, you may discover that some of the critical documents you’ll need for job hunting and other life purposes are actually still at home with your parents or sitting in a box in your apartment somewhere. Get all important papers such as Social Security card, birth certificate, banking and credit card account numbers and insurance policies in one place and consider purchasing a fireproof document safe to store them.

2. Start paying off your credit cards and student loans

Unfortunately, the average college student graduates with an average credit card debt of more than $4,000, and student loans of over $29,400. Make it your top priority to pay off your credit card debt and make your student loan payments on time—not only will you be working your way toward being debt-free and no longer paying interest, you’ll be building an excellent credit history. If you have federal student loans, you may have a grace period before you have to begin payments, but those bills will be coming due before you know it. If you foresee difficulty making your payments, contact your lender right away. Visit studentaid.gov to learn more about your repayment options.

3. When you’re offered a job, look closely at the total compensation package

Remember, a job is more than just a salary. Be sure to look for one with good benefits, including health insurance coverage, dental care and a retirement plan. You will likely pay a portion of your health insurance, and that amount can vary greatly by employer. Similarly, retirement plans and the amount your employer may contribute varies. Check out this handy guide from the U.S. Department of Labor for more information on the types of retirement plans available.

4. Reel in your spending

One of the biggest mistakes recent college graduates make is spending all, or even more, than what they earn. Even if you already have a job, unchecked spending habits threaten your financial health and your ability to reach long-term goals like owning a home or saving for retirement. Getting off on the right foot is not that hard if you stick to a realistic budget, track your spending and avoid things like high rent, new cars and dining out too much. Remember, the key to gaining wealth is spending less than what you earn and saving the rest.

5. Start an emergency fund

Set aside a certain amount each month to build your emergency fund. And by “emergency,” we mean losing your job, not that vacation in Barbados. Set up a direct deposit from your paycheck into an insured money market fund or savings account—even $25 will add up quickly. Your goal should be an amount equal to three to six months of living expenses, although in today’s economy, having enough to cover six to nine months may be more advisable.

6. Pay yourself first

One great financial advantage you have as a recent college graduate is time. Money you invest now will have years of compounded growth. Even depositing $100 a month in a regular savings account yielding just 1 percent per year will grow to over $12,600 in 10 years! While paying off your credit card debt and making sure you can afford your monthly student loan payments should be your top priority, it is never too early to start saving for your retirement. If your new employer has a 401(k) plan, be sure to sign up as soon as you are eligible and plan to put in 10 percent of your salary. In the meantime, consider opening an Individual Retirement Account (IRA). Small steps you take now can really make a difference to your retirement nest egg down the road. Investing just $500 a year can add up to over $233,000 in 40 years, assuming an annual rate of return of 8 percent.

7. Avoid buying a new car

It’s tempting to start your new life with a new car, but resist. A new car loses some of its value as soon as you drive off the lot, and will mean a steep increase in insurance costs. Even if you were paying your own insurance in college, you most likely were on your parents’ policy, which means you were paying a discounted rate. Once you have your own policy, you won’t benefit from multiple car discounts, and as a younger driver you’ll pay more. And if you get a new car, the rate will be even higher, since in general, the newer the car, the higher the insurance. Set aside what you want and consider whether you need a car at all. If the answer is yes, look into getting a used car from a reputable dealer.

8. Make sure you have health insurance

One of the worst decisions you can make for your health and your wallet is to simply go without health insurance. While you were in school, you were probably covered by your parents’ insurance plan. The good news is that thanks to The Affordable Care Act, young adults are now permitted to stay on their parents’ health care plan until age 26 even if they are no longer in college, don’t live with their parents and aren’t named as dependents on their parents’ tax return. Be sure to check with your parents to make sure you are still on their policy. If you are an older student, you may have been covered by student health insurance provided by your school. Be sure to review the terms of your coverage for expiration dates and other important details. If your employer doesn’t provide health insurance or you are currently unemployed, visit healthcare.gov to see if you can apply through your state’s marketplace.

9. Become a good credit risk

Your degree may be your ticket to a good job and career, but your credit rating is your ticket to borrowing money to buy a home or a car. Lenders want to know what risk they are taking in loaning you money and use information collected by credit bureaus to make that assessment. Monitor your credit reports regularly and always, always pay your bills on time.

10. Know your net worth

You can’t get to where you want to go unless you know where you are. Your net worth is the total of all your assets (things that you own) minus your liabilities (things that you owe). You should track your progress from year to year. If your net worth is currently negative (which isn’t unusual for recent college graduates with student loans), your goal over time should be to pay down your debt and move into the positive column.

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