My daughter graduated from high school on June 2. This fall will be the start of a special year in our family’s financial life: I will have two college students at the same time. These are the days.
With graduation at the top of my mind, I thought I’d share some tips and advice for families with graduating seniors, either in high school or college. It’s probably not surprising to learn that most students need better financial habits. A recent study from the Lumina Foundation shows that college students reported being less prepared to manage money than any other aspect of college life.
Here are a few discussion points to have with new graduates in your life:
- Build a cash cushion. Every time you get paid, move some amount of the money into an emergency fund to cover you when something unexpected happens. Even if it’s just $25 a month, it’s a start. Your goal is to save six months of your living expenses in savings. Having an emergency fund is a critical first step to financial wellness.
- Set a debt-free deadline. Almost every college student graduates with college loan debt and even those that don’t probably have a credit card balance. Take a few minutes and a loan repayment calculator to see quickly you can retire that debt. Often even a small amount of extra payment each month can make a big difference in your payoff date.
- Get health insurance. College graduates can stay on mom and dad’s insurance until they are 26. So as that birthday approaches, be sure you understand your employer’s health insurance options. If there is no insurance through work, contact an independent health insurance expert to get coverage in place. Rates for young healthy workers are usually pretty good and health insurance is important protection against a major medical bill.
- Give yourself free money. Take full advantage of your employer’s retirement savings plan. Most companies offer some form of employer-sponsored retirement savings plan. Usually, the plan will include matching money that the company adds to your account based on how much you save. Remember, matching money is absolutely free to you. It is one of easiest financial decisions in your life. Yes, take the free money from the boss. The matching contribution always has a limit, but do your best to save enough of your money to get all the money the boss is willing to give you.
- Stay flexible. The U.S. Bureau of Labor Statistics says that a typical college graduate will have 5.8 jobs between age 22 and age 28. And the U.S. Census Bureau says that people in their 20s move residences twice as much as the general population. This sort of change is a healthy sign of young person building a career and taking advantage of opportunities. But it’s a great reason to keep your savings and investments flexible. For most young people, a savings account at the bank and your 401k at work are a great start.
- Learn some basic skills. You can save a surprising amount of money if you learn to iron your own shirts and to cook most of your meals at home. Seriously, some young folks spend hundreds of dollars a month on food. (Fifteen dollars every working day for a morning coffee, lunch and a beer after work is $300 most working months.)
- If you have a partner, talk about money. A recent survey shows that 43 percent of people did not know their partner’s salary. If you talk about your money and understand where you stand and where you are going, you have a much better chance of success.
- Know your value. As a young person, any bump in compensation can make a big difference in your life since all future compensation tends to be based on your past pay. Understand the value you add to the company and don’t be afraid to make the case for an increase in pay.
- Be thoughtful about graduate school. Today many Americans think of a college degree as a requirement for a solid career. Often, people also get graduate degrees. You should understand if you need a graduate degree to achieve your career goals or not. Remember that it’s another investment that needs to pay for itself.
- Clean up the credit cards. Most college graduates have credit card debt. A recent study showed that 27 percent of four-year college students have more than $1,000 in credit card balances. Use the Bankrate calculator to figure out how to pay off your balance in the next year. The interest accumulating on credit cards is a huge financial burden you want to eliminate.
- Save up and pay cash for something important. It’s a little old school, but paying cash for something you really want is a great feeling. Here are some tools to help. Make a point to save some cash and get yourself something nice. You will be glad you did.
If you want help for your new graduate, maybe a conversation with an expert would help. A CERTIFIED FINANCIAL PLANNER™ professional would be a great resource for your family.
To find a CFP® professional near you, start your search here.
As you visit with financial planners, I suggest a couple things to check:
- Is the advisor always the client’s advocate – a fiduciary advisor?
- Is the advisor only paid by clients, not any financial product manufacturer or distribution network? That would be a fee-only advisor.
These two points help assure that you are working with a professional who is committed to your best interest at all times. It seems sort of obvious to me that a professional would work in this way, but it’s not automatic.
Yes, I am a CFP® professional. I’m always a fiduciary and I only work on a fee basis. And yes, I’m still taking on a few great families to be part of my financial planning practice.
If this article has you thinking about your own circumstances, contact my office at rdunn@dunncreekadvisors.com. I am always happy to meet with people who are working on their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.
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