6 Topics To Discuss With A New Graduate

A word to new college grads from the #LKNMoneyMaven!

Now that the summer is over and many college grads are settling into their jobs, they face new financial realities.

High student debt, little savings, and a short credit history. OH MY!  Does this sound like you?

Here are six topics I often discuss with a new graduate:

1. Control Your Outgo 1

It’s understandable that you, a new grad, may have some spending urges that were pent up during your frugal student years now that you have a decent income.

But rather than jump from a room in a shared house to a single apartment, or trade a bike and the bus for a brand-new car, you’ll be better off spending only a little more on housing and transportation than you did in your college days.

Unmonitored small expenses can be a big budget-buster, too. Track your spending with a service like Mint.com.  This allows you to see where your money is going and what can be cut.

2. The Credit Rating Is Crucial

2It is important that as young adults, you realize the effect your credit rating has on your future plans.  Have you thought about or plan to buy a better car or a home someday?

Along with the savings necessary to make the down payment for these purchases, you’ll likely need to have a very good credit rating when you’re ready to buy.  If your credit score isn’t what it should be, it could take months or years to build it up to an acceptable level.

In addition, credit scores can affect auto and homeowner’s insurance costs, the ability to rent an apartment or sign a cell phone contract, and can even damage  employment prospects.  Check your credit report!  Annualcreditreport.com is the best site to use. It’s free and you are eligible to get a report from each reporting agency once a year.  Aim to request a report from each of the three bureaus once every 4 months.  That way you stay on top of your credit and it isn’t costing you a dime!

If you have a credit card that doesn’t provide your FICO score free whenever you want it, you could go to MyFico.com and pay a small fee to get your current credit scores from the three major bureaus. The site also provides tools you can use to see how certain actions—such as paying down debt or missing a payment—may affect your score.

3. Pay Down Student Debt

The majority of 2015’s graduates will have some form of student loans, ranging from a few thousand to a few hundred thousand dollars.  There is more outstanding student loan debt in this country than credit card debt.  That is a startling statistic!3

Wise young adults, you, will of course want to pay those loans off as quickly as possible. But one suggestion is that you only make the minimum payments required until other financial goals are achieved.

Work to get at least six months’ worth of expenses set aside in a liquid savings account, and then move on to paying down any high-interest consumer debt.

Graduates with low or no pay and federal student loans may be able to get their minimum loan payment amount reduced by visiting www.ibrinfo.org.

4. Jump-start Retirement Savings

Once your basic financial needs have been taken care of, it’s time for you to start saving as aggressively as possible for retirement.

4It’s tricky enough to get young people to take actions that will protect them in the distant future. It’s even more difficult to convince you to save for tomorrow when there are so many fun ways to spend the money today.

Instead of trying not to spend at all, think about waiting just wait a few years to splurge. Did you know that $5,000 saved per year from age 22 to 32 will be worth more at age 65 as if one saved the same amount from age 32 to 65, assuming the same annual hypothetical rate of return?

If you have a full-time job, send your 401(k) enrollment documents from your new employer to your financial advisor, or me. Your financial advisor can then review your investment options and suggest how much to save to the suggested allocation options.

If you’re in a lower-income tax bracket and concerned about setting aside money that may be needed sooner instead of later, think about a Roth IRA. The contributions made to the Roth IRA can be withdrawn after 59 1/2 for any reason with no taxes or penalties whatsoever after it has been open for at least 5 years since the first contribution was made. The earnings on your contributions will be taxable and an additional 10% penalty may apply if you withdraw them before 59 1/2. The principle contributions can be withdrawn without any penalty or taxes applied.

5. Be Safe With Cash, Bold With Investments

Those of us who are getting on in years take it for granted that stock markets can go up and down a lot—and sometimes in a relatively short period of time. That, of course, is the price investors pay for long-term returns. 5

New savers and investors, like you, may not be aware of this likelihood, or they may be too conservative with long-term investments.

Money that may be needed in the near future should generally be kept in safe, liquid, low-to-no-interest checking and money market accounts.

Your retirement savings can go toward something with a higher risk/reward ratio. Just remember that a big decline in any given year is possible, and that there’s no reason to panic.

6. Choices and Consequences

It it important to meet and talk with financial advisors because they impart some more abstract life lessons drawn from their personal experience, or what they’ve learned from clients.

6For instance, they might encourage you to take a job that offers less pay today but more rapid advancement or interesting work.

Marriage and a family may be a long-term goal for you as well, but they may point out the increased financial, professional and personal sacrifices that come with having a family.

Also, they’ll make it clear that you can contact them (confidentially) with any financial questions you have in the future. Their advice may mean more coming from them rather than your parents.

Thinking and talking about these financial topics is a smart Financial Strategy For Life!

Source: Wealth Management

About Sara Seasholtz

Sara Seasholtz, CFP®, was voted one of "50 Most Influential Women in Charlotte" by The Mecklenburg Times in 2011, and has assisted her clients with their financial planning needs for over 40 years. Have a financial question? ASK SARA!


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