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ve Money Management Rules Every Recent College Graduate Should Follow
You've graduated and the world is yours. There's no better time to organize your finances and put your best foot forward. Follow these steps and you'll be on the path to a financially sound future.
Get out of debt.
Two-thirds of college graduates carry an average of $19,237 in student loans with their diplomas, according to the National Postsecondary Student Aid Study. Harrine Freeman, CEO of Harrine Freeman Enterprises LLC, suggests using the "debt snowball method" to get debt-free.
"Start by paying off the smallest debts first, then use the money paid toward a previous bill and apply it to the next bill; continue this process until all your debts are paid," she says.
Brad Stroh, co-CEO of Bills.com, suggests focusing on the debts with the highest interest rates first. He also recommends taking advantage of student loan tax benefits.
"Most new graduates can deduct up to $2,500 per year in student loan interest payments," he says. "The deduction phases out for taxpayers with annual incomes between $50,000 and $65,000, or $100,000 to $130,000 for those filing joint returns."
Stroh says that some professions offer student loan repayment programs -- in monthly assistance, one-time payoffs, or matching funds. Freeman says there are also student loan forgiveness programs through volunteer work, such as teaching or providing legal or medical services in low-income areas.
"If you qualify for one of these programs and don't take advantage of it, you are effectively turning down free money," Stroh says.
Establish good credit
Establishing good credit begins with understanding the difference between healthy debt and unhealthy debt. Stroh says there are four types of healthy debt:
- Student loans: An education can increase your earning potential.
- Mortgages: Homeowners can build equity and net worth.
- Medical bills: Your health is everything.
- Business debt: Building a business can affect future earnings.
"All other types of debt - especially credit card debt - create more problems than they solve," says Stroh.
Protect your credit score by monitoring the activity on your credit report. You can access credit reports annually for free at www.annualcreditreport.com. If you spot an error, take action immediately.
"Under the Fair Credit Reporting Act, the credit bureaus must investigate any disputed items and remove them from the credit report if they cannot be verified," Stroh says.
One last note: If you want to apply for an auto loan or other significant debt, don't open any new credit card accounts for six months ahead of time. Stroh says that every new inquiry to a credit report adversely affects your credit score.
Control your spending
To control your spending, you have to know what you're spending, so track your monthly expenses and create a realistic budget. Also, leave that debit card at home.
"Make like an ATM and hand over old-fashioned bills for your routine expenditures; people who do not use debit or credit cards are less likely to throw that extra item into the shopping cart," Stroh says.
Keep in mind that small, daily expenditures morph into huge balances over time. That $4 espresso drink twice a week for 25 years adds up to more than $10,000!
Prepare for emergencies
No one likes to think about it, but a serious illness or injury could derail your finances and ruin your credit. Most experts suggest saving three to six months' worth of living expenses in an emergency fund to protect yourself.
Also, buy home, auto, health, disability, and life insurance to protect your assets. Work with a broker, as an agent only represents the policies of his company. Also, if your employer's group disability insurance isn't mandatory, buy your own policy.
Says Frank Darras, an insurance attorney who represents consumers: "When you pay your premium personally, the benefits flow to you tax free - not so if your employer owns the policy."
Build your nest egg
Both Freeman and Stroh recommend saving 10 percent of your net income and starting with a retirement savings plan offered by your employer, such as a 401(k). If you're not sure what mutual funds to choose, ask your HR manager if the company's investment program includes access to a financial advisor.
"Your focus here is on long-term growth; you have to be willing to leave your money untouched for the next five to 10 years," Freeman says. "Otherwise, you won't be able to see the benefits of your money growing."
If you don't want your savings tied up, choose a money market account that allows withdrawals only at certain minimum levels, says Stroh. "Or you can purchase short-term CDs - meaning three- or six-month terms - on a regular basis," he says. "This strategy will provide some interest earnings and force you to constantly reinvest."
Keep these five steps in mind and you're guaranteed a solid financial footing on your path to success
Wireless Business Solution Zee Tawasha