Financial Planning Tips for Recent Graduates
As proud families celebrate and relieved graduates get ready to enter the workplace, new financial concerns take precedence. Now it’s no longer about how to pay for their education, it’s whether they’ll get a job and how they’ll manage on their own.
Now is the time to have a conversation about financial planning and the future. Here are some areas to cover:
- The virtue and necessity of saving. Getting that first paycheck can be a rush. It’s very tempting to go out and spend it all. Show them real examples of what happens if you start saving in your 20s rather than waiting till you’re in your 30s or worse, your 40s. Let them see what that will cost them in terms of lost income from compound interest.
- Retirement planning. It may seem very far away, but now is the time to start your retirement fund. If you have a job that offers a 401k, contribute enough to get the maximum employer match. If not, start your own IRA.
- The need for an emergency fund. Most Americans would not be able to find $1000 for an emergency such as for unexpected medical costs or a major repair bill. This can happen to anyone, and without an emergency fund it can be devastating financially. Aim to keep an amount equal to three month’s salary in this fund, so you can cover any emergency or loss of income.
- Make a plan to pay off student loans. Millions of Americans are saddled with student loan debt (more than $1.2 trillion, according to the Federal Reserve Bank of New York). This can lead to derailing other goals such as buying a house. Pay the loans with the highest interest rate first.
- Be wise with credit. Credit cards can get out of hand very fast. Then you’re on the never-ending payment and interest cycle. Show your kids how it works and just how much they’ll end up paying if they buy something on a card and only pay the minimum payment each month. Make them aware of how credit scores work and what improves it and what makes it worse.
Now that they’ve graduated, one phase is over but another begins. They’re just starting out on the road of life, and these lessons can help them make it a smooth transition.
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