Money Tips for New Graduates
College commencement speakers have spent the last few weeks insisting that new grads should follow their passions above all else, said Suzanne McGee in The Guardian (U.K.). But I’m here to tell you, grads, that “money does matter.” The good news is “you’ll never be in a better position to begin thinking about money the right way.” Now is the time to develop habits that will set you up to do well financially. “For most of us,” that doesn’t mean making millions, but rather being able to see money “as a tool.” Just having a plan will set you apart from most Millennials. According to one study, three-quarters of Millennials have specific financial goals, but only 20 percent have a plan for achieving them.
After rent, student loans “will likely be your biggest monthly expense,” said Charles Passy in MarketWatch.com. Start making payments within six months of graduation or risk garnished wages and damaged credit. Most experts recommend going with a standard 10-year payment plan. That way, you’ll be without “any sizable debt” heading into your mid-30s, when decisions like having children and buying a home enter the picture. Once you know your fixed costs, like rent and loan payments, you can budget for discretionary expenses. It’s fine to have that daily latte, but “what’s critical is to plan for your latte.”
If you “have already mentally spent your first paycheck,” slow down, said Allan Eberhart in Bloomberg.com. You’ve earned that salary; now “make it work for you” by taking advantage of any available benefits. If your employer offers a 401(k) match, don’t turn it down. When you invest, look for index funds and treasury inflation–protected securities (TIPS), which are both tried-and-true, low-risk investments. At the same time, work to get rid of “bad debt”—which is money you owe that “incurs higher costs than you can expect to earn on your investments”—like credit cards. It’s also time to start building your emergency fund. “There’s no universal agreement” on how much to save, “but half your salary is a reasonable goal.”
If you’re the parent of a new graduate, you can help, said Michelle Singletary in The Washington Post. Your grad can use some guidance in sifting through the “overwhelming amount of information” he or she is receiving in the form of hiring packets and retirement plans. A visit with a fee-only planner who can map out an investment strategy makes a nice graduation gift. And don’t add to the pressure that your son or daughter should buy a home as soon as possible. “Homeownership is right when it’s truly affordable and not a day sooner.”
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