Thousands of college graduates across the country recently found themselves awash in a sea of student-loan debt and other serious financial responsibilities, including an abundance of new bills.
But wait, there’s more! Many also are grappling with the challenges of starting a new job, finding an acceptable place to rent, tracking down furniture for it and perhaps striking a bill-sharing deal with a new roommate.
All of these issues can be complicated and fraught with financial landmines. The following tips can help grads and other young adults avoid the burden of long-term money-related headaches.
1. Devise a spending plan. Make sense of where your money is going — or needs to be going – by tracking your spending in writing for one month. All the while, stay on the lookout for opportunities to reduce your spending. Remember to factor in fixed costs such as rent along with debt payments and other expenses, which may include entertainment, clothes, haircuts, magazines, sports equipment and the like.
2. Pick the right bank. This is one area where it pays to shop around and ask plenty of questions. Ideally, the bank you choose should provide free checking, direct deposit, online bill paying and many convenient branches and ATMs. You may not have a ton of money in your savings or checking accounts at this stage of your life — and that means many banks will charge you monthly fees for failing to maintain their minimum account balances. You may be able to get those fees waived if you have your paycheck deposited directly into your account, and if you don’t do face-to-face business with tellers.
3. Save, save, save. Since you’ll be depositing your paycheck directly into your account anyway, find out whether it’s possible to have a portion of it deposited directly into savings. Consider an online-only savings or money market account with much higher yields than traditional savings accounts. Many online accounts offer annual percentage yields between 4 percent and 5 percent or even higher. For more details about this method of earning more interest on the money you save, read this past “10 Tips” column on the subject.
4. Avoid credit-card debt. As you adjust to juggling all of your expenses, be careful not to saddle yourself with debt or overextend your budget by relying on credit cards. Instead, opt for a debit card, which is limited by the amount of money you have in your checking account. If you feel you simply must have and use a credit card, shop around for a no-frills card with an interest rate in the 10 percent to 11 percent range, and be vigilant about paying off the card’s balance in full each month. Or, if you’re already struggling with credit-card debt that accumulated during your college years, always-always-always pay more than the minimum due each month, and always pay your bill on time. (More on that in tip number 8!)
5. Whittle away your student-loan debt. According to the College Board, graduates with four-year degrees carried a median total debt level of $19,300 three years ago; this year, that amount is expected to reach $22,000. While student-loan debt is generally considered “good debt” – that is, an investment in your future earning potential – it’s also debt that will stay with you unless you have a strategy for tackling it. (Even a bankruptcy filing won’t erase your student loans in most cases.) Try hard not to default on your loans or defer them either; the longer you defer paying them, the more interest will accumulate on them. Devote as much money as you can to paying down the loan with the highest interest rate or the one that starts accumulating interest first. If you’re entering a field where companies are hungry for qualified workers, ask your prospective employer to help you pay off your student loans.
6. Share the risks and expenses. Young adults and their roommates should understand that the person whose name appears on the lease and utilities is liable for the bills. If you have roommates, ask your landlord to put more than one name on the lease so the responsibility can be shared. And as you get settled into your new place together, don’t blow a lot of money decorating. Furnish your first apartment through garage sales, classified ads in your local newspaper, Craigslist and used furniture stores that have reasonable prices.
7. Parents, avoid co-signing. Young adults with no credit history may ask their parents to co-sign an apartment lease or a car loan. Parents should look into every other alternative before agreeing to do this at a time when their children should become financially independent.
8. Pay each and every bill on time. This may sound like an obvious one, but even minor mishaps in this area can haunt you for longer than you might think. Late payments can lower your credit score and result in higher interest rates on just about everything. The consequences for late credit-card payments can be especially severe; pay past the due date just once and your interest rate can skyrocket to punishing levels. If you’re finding that certain bills regularly come due before you’ve received your paycheck, ask to have the due date changed. And remember to keep all of your creditors up to date with your latest mailing address if you move – something recent graduates tend to do quite a bit.
9. Make sure you have enough insurance. If your first job doesn’t offer health benefits, or if your health coverage won’t kick in for several months, at least secure a low-cost catastrophic health insurance plan with a high deductible, or a short-term health plan to get you through the interim. Also ask about any and all possible discounts when you buy your own car-insurance policy, and be sure to snatch up a good disability-insurance package if your employer offers it.
10. Sign up for that 401(k). Saving for retirement may seem like your lowest possible priority when you’re being confronted with so many new and major expenses all at once. But in many cases, you can view your 401(k) contributions as an instant raise. That’s because many employers will match your contributions up to a certain point. Don’t let such free money slip away! Even if you don’t get a match from your employer, experts recommend getting in the habit of regularly socking away at least a little bit of money for retirement. Nicholas Aretakis, author of “No More Ramen: The 20-Something’s Real World Survival Guide,” suggests putting $6 a day into a 401(k) or 403(b) tax-deferred retirement account – and then being disciplined about not touching that money.
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