By Kara Brockmeier, CFP
Congratulations, graduate! After spending years of your life preparing for life after school, it’s finally time to put your knowledge and experience to the test. Here are three ways to get you started on the right foot to prepare for financial success after college.
Often people open their first credit card while in college or right after graduating. Credit can be a great tool; but, if not used properly, it can also get you in a lot of trouble and impact your ability to do important things like buying a house, buying a car, etc. Therefore, it is important to make the right choices early on when it comes to managing debt. If you have credit card debt or other high-interest debt, consider paying it off.
Student loans are the main source of debt for university graduates. Student loan debt is not bad debt because it was used to pay for an education that helps you build a strong foundation. A college education can also help you land your dream job and provide you with plenty of opportunities to create the perfect life for yourself.
Student loans can be federal or private loans. Federal student loans are flexible with their repayment options and are suitable for those who are in a career where they could qualify for student loan forgiveness. If you have a stable job that does not qualify for loan forgiveness, you may consider consolidating your loans into one private student loan at a potentially lower interest rate.
Resources to tackle debt and refinancing student loans:
Once you’ve mastered dealing with high-interest debt (which doesn’t necessarily include student loan debt), it’s time to start thinking about making your money work!
Have you ever heard the expression “cash is king?” Well, it’s true. Yes, you may not earn much on your money. However, the value of cash is that it helps you survive the unexpected from a financial perspective without putting yourself in further debt.
A good rule of thumb is to keep three to six months of your average monthly cash outlay. This money will be the money that you will use to deal with those unexpected events that life throws at you like a car repair, loss of a job, etc.
Resources for budgeting to help build species:
Once you’ve covered your money, it’s time to start thinking about investing!
One of the easiest ways to start investing is with a work-sponsored retirement plan, such as a 401k, 403b, or Simple IRA. Did you land your first gig? Are you still looking for your dream job? Either way, be sure to find out about the company’s pension plan and whether it offers a “match” employer. A “match” is when your employer contributes to your pension plan based on the amount of your annual contribution.
You can also consider opening and investing in Roth IRAs. Roth IRAs are generally good for young investors who don’t need tax relief now, because Roth IRAs have the potential for long-term growth that won’t be taxed when you use the money at home. retirement.
Resources for invest:
- Work-sponsored plan? Contact HR and determine your options.
- Two websites that can guide you through opening a Roth IRA: Betterment (betterment.com) and Marcus of Goldman Sachs (www.marcus.com)
Tackling debt, building up cash, and investing are three ways to start after graduation. These can be done one by one or all three can work together at the same time. For example, you can start reducing your debt, while building your cash, while taking advantage of your company’s retirement plan early by investing the minimum amount required to receive the company’s match. Everyone’s situation is unique, so consult your finance professional who can be an additional resource to those provided in this article to decide which method is best for you to ensure you are on the right track.
About the Author: Kara Brockmeier, CFP®
As a CERTIFIED FINANCIAL PLANNER™ professional, Kara strives to help you define and pursue your unique life goals. Kara became a financial planner after realizing she wanted to work with clients the same way she discusses money with her friends, in a fun and relevant way.