The Gift of Good Financial Advice
November 12, 2013
By Beth Jones, RLP®, AIF®, CFT™
Congratulations to all recent college graduates! It’s now time for them to jump into the next stage of life — to earn their own salaries and pay their own bills. This could perhaps be their biggest life transition to date whether they have been fairly independent during their school years or relying on Mom & Dad. Either way, managing their money as an adult can be difficult.
Each graduate is embarking on new challenges and setting new goals regardless of his or her financial circumstances. And, one of the best gifts a graduate can receive is some good financial advice to help get them started down the right path to financial responsibility.
Repaying student loans
Depending on how much money a graduate must repay, managing student loans may seem impossible. According to the College Board’s Trends in Student Aid 2010 study, almost all students who earn four year degrees from for-profit institutions graduate with debt. Median debt levels range from $24,600 to $34,600.
Most federal loans offer six or nine month grace periods before repayment must begin, but many private loans do not. It is important to review loan documents carefully to understand repayment options. If a graduate anticipates difficulty in repaying loans, they should contact lenders immediately to take advantage of possible consolidation options or to work out an agreement to defer payments. Consolidation companies often will offer you a reduction of interest rate of .25% if you set-up an automatic payment directly from your checking account. Do your research – not all student loans can be consolidated.
Set up a budget
Now is the ideal time for graduates to put a realistic budget in place. Several excellent online tools are available to help, including mint.com and mymoney.gov. A budget should cover all necessary expenses and should take into consideration:
- Creating an emergency fund. This is by far the most important part of a budget. The recommended safety net is usually three months of expenses. But in these challenging economic times, a safety net of at least six months of expenses may be more appropriate. Though it can be tough to build any type of safety net on an entry level salary, it should be a priority. And, don’t forget to save for those big ticket items like auto insurance.
- Building a nest egg. Squeezing retirement savings out of a new graduate’s salary also isn’t easy, but the message is simple: start saving soon. A relatively pain free way is to contribute to an employer sponsored 401(k) plan, especially if the employer offers a company match. You will want to put away at least what is matched by the company and try to start with 10% minimally – the percentage can be raised over time.
- Making sure social activities don’t break the bank. A young person shouldn’t eliminate his or her social life to save money, but it’s not sensible to spend lots of extra cash on happy hours, dining out, or concerts. We recommend finding a budgetfriendly, happy medium and sticking to that weekly.
Cleaning up the digital footprint
Every graduate should Google him/herself to find out what kind of information is easily accessible about them on the web.
There are two ways to manage an online presence. First, new graduates should avoid conveying a negative image on social websites like Facebook. Untagging or deleting compromising photos and managing privacy settings are good ideas, as is limiting what professional friends can view. On the other hand, new graduates can promote a positive online presence by registering on sites like LinkedIn and Google Profiles, which are geared to professional networking.
Keeping credit in good shape
Bad credit is hard to undo; it can limit access to loans, lead to increased interest and insurance rates, and possibly prevent a candidate from getting hired. The best advice for keeping credit under control is to make payments on time and pay more than the minimum, with an ultimate goal of paying off credit cards in full monthly.
Graduates should also check their credit once a year at each of the three major credit reporting agencies—Equifax, TransUnion, and Experian—to ensure that they have not fallen victim to identity theft. They can do this online at annualcreditreport.com.
Developing a plan, but staying flexible
Grads should dream big when building a life plan. And, life delivers obstacles from time to time, so it’s important to be flexible along the way. Why not share some of your own money lessons with your children so they understand that they are not alone, or better yet make an appointment for them with your trusted advisor.
The transition from a life of textbooks and papers to a life of working and bills will be easier with a budget. It will help your graduate save money, begin to pay off loans, and enjoy the next stage in life. You’ll feel relieved, knowing that you’ve taken important steps to help secure your graduate’s economic future.
Third Eye Associates, Ltd disclaimer
This article is provided for general informational purposes only and should not be construed as investment advice. Always consult a qualified Financial Consultant or Planner who can guide you in creating a globally diversified portfolio that provides growth and income with an eye on managing volatility.
Beth Jones, RLP®, AIF®, CFT™ is a Certified Financial Transitionist™, Registered Life Planner, and Financial Consultant with Third Eye Associates, Ltd, a fee-only Registered Investment Adviser located at 38 Spring Lake Road in Red Hook, NY. She can be reached at 845-752-2216 or www.thirdeyeassociates.com.