When you’re graduating college, there are a lot of financial decisions to make. Many you are quickly aware of, while some you may take some time to learn. Nichole Coyle, CERTIFIED FINANCIAL PLANNER™, is here to give you a shortcut to information that can help you be a step ahead!
1. Student Loans
Most people just graduating college will leave higher education with some student loan debt. So it’s understandable if your most pressing financial concern is how to pay off student loans. One of the very first things you should do is determine if you qualify for any type of student loan forgiveness. Visit https://studentaid.gov to find out.
For years, student loan forgiveness has been available for certain job fields. According to studentaid.gov, if you are employed by a government or not-for-profit organization, you may be able to receive loan forgiveness under the Public Service Loan Forgiveness (PSLF) Program. There are additional forgiveness opportunities for teachers as well.
For loans that are not forgiven, you should call (or go online) to consider all of your repayment options. There are income-based repayment options as well as deferment and forbearance options available to you.
2. Making a Budget
You may have used a budget while in college, if so, this is a good time to reassess as your income and expenses change. If you’ve never made a budget before, the perfect time to start, is now. Check out this previous blog post about budgeting.
It’s very important to control your money and not let it control you. Know how much you have coming in and how much you are spending. By making smart choices with your money early on, you can help set yourself up for financial freedom.
Have you reviewed your credit score? Knowing what your credit score is and how to improve (or keep it up) is important.
Did you know that closing an old credit card account can hurt your credit score? The more available credit you have, the better. When you close an old account, you remove that available credit, reduce the number of accounts, and reduce your average length of credit all at the same time.
Another way to hurt your credit is to have too many “hard inquiries” in a 2-year period. Keep this in mind when you apply for a car loan, a mortgage, credit cards, and so on. You also want to avoid applying for, or opening too many, loans/credit accounts in a given period of time.
One way to help your credit score is to open a revolving credit account (a standard credit card for example) that you use wisely. An account that will increase your limit over time provides a great opportunity to build your credit in multiple ways. Make sure you use this account wisely, though! Only charge what you can afford each month, and then pay it off, so you don’t incur interest charges.
4. Emergency Fund
This is going to be one of the most important bits of financial information you learn about. And even though you are graduating college, it’s entirely possible your classes never reviewed this important lesson. Establishing an emergency account and funding it will keep you from incurring bad debt and prevent circumstances that would otherwise force you to pull money from retirement accounts or other long-term investments earlier than planned.
Work towards saving a minimum of 3 months of expenses and six months of income into your emergency fund. Generally, keeping your emergency account within those ranges will help in the event of an illness, accident, urgent home repair, job loss or transition, or other emergency. If you are self-employed, have a seasonal job, or if you have little job security, your emergency fund may need to look a bit different.
5. 401k and Other Employer-Sponsored Retirement Plans
When you start your first full-time job, you will likely have the opportunity to contribute to a retirement account. While it’s not as common anymore, some jobs offer pensions. A pension is a retirement account that your employer provides to you without you having to contribute anything towards it.
A more common option is a 401k (or 403b if you work for a non-profit). These accounts allow you to contribute a percentage of your income either pre-tax (traditional) or after-tax (Roth). Your contribution is invested according to your selection of investments that your employer’s plan offers. Many plans use mutual funds as the main investment choice in these types of plans.
One of the biggest benefits of employer-sponsored plans is that your company may match part or all of your contribution. For example, if you contribute 10% of your income to your 401k, your employer might match that savings by adding an additional 5% to your account on their dime.
Retirement accounts are important and it’s vital to remember that they are for retirement. You shouldn’t take money out of these plans prior to retirement age (59 ½) because penalties are imposed for doing so.
6. Meet with a Financial Professional
Graduating college and entering into a full-time career is a great time to meet with a CERTIFIED FINANCIAL PLANNER™, like myself, to talk about financial aspirations you have. You can ask questions and learn about next steps to help you work towards your future goals.
As always, if you have questions about this or any other financial topic, don’t hesitate to contact me.
CERTIFIED FINANCIAL PLANNER™
20333 Emerald Pkwy
Cleveland, OH 44135
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For a comprehensive review of your personal situation, always consult your legal advisor. Neither Cetera Advisor Networks LLC, nor any of its representatives may give legal advice. Distributions from Traditional IRA’s and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to 59 ½, may be subject to an additional 10% IRS tax penalty.