5 financial musts for every college grad
For college students on the verge of graduation, the span of just a few months can bring first jobs, first paychecks, first retirement accounts, first time regularly paying monthly bills and first time dealing with unexpected expenses without parents' help.
It can be overwhelming.
Here are the five things financial experts say every college grad should be doing with his or her money in the months after graduation when time is working with you, not against you, and you have more money than you may think.
Create a budget. Actually do it.
This is "nothing earth shattering," as Karen Carr, certified financial planner at Boston-based Society of Grownups, puts it, but it's the No. 1 piece of advice every financial expert interviewed by USA TODAY gave. Understanding how much money you have coming in and going out is one of the most fundamental financial steps you can take for yourself after graduation.
If you're starting a job and bringing home your first real salary, make sure you understand the difference between your gross pay, your salary, and your net pay, what you actually get after taxes, Carr says. If you don't have a job yet, work backward in creating a budget. Figure out your base level expenses in the city you want to live and look for job in and what salary would support that, Carr says.
Make a student loan payment plan
This is the No. 1 thing new grads are anxious about, Carr says. Understanding your obligation and how long it will take you to pay off your debt will help you take control of your debt instead of letting it freak you out. Use a debt calculator to figure out exactly how long you'll be paying off your loan. Despite what it feels like now, it won't be forever.
Then pay attention to the interest rates on your loans – the tens of thousands of dollars you borrowed didn't come cheap! – and research repayment options if the default your servicer offers is more than you can afford, Carr says. There are student loan refinancing and consolidation options that can help you get a lower interest rate or make your monthly payment lower.
It's OK to take advantage of the grace period for starting to pay your loans, particularly if you're incurring moving expenses or other major up-front costs during that time, Carr says. You can also use that time to put the amount you would be paying toward loans into emergency savings, so you get used to making the payment but build up a cushion at the same time.
Understand your company benefits (a.k.a. open that huge packet you got during orientation)
That big packet of information you get when you start your first job can feel unmanageable and seem even a little boring. Don't cast it aside for too long though. If anything, at least skim it over for important dates, like the deadline to sign up for health insurance or when you'll be eligible to open a 401(k), says Susan Beacham, CEO of Money Savvy Generation.
"Absolutely the No. 1 priority is to understand your benefits," she says. That packet also likely has information about things that will actually peak your interest, such as corporate discounts, gym memberships, public transportation benefits and the company's vacation policy.
Invest in your 401(k) before you know what you're missing
Yes, you just started being a real adult and retirement is a long ways off. But thanks to time and the magic of compound interest, you'll never be in a better position to invest in your future than right now. If your company has a 401(k) match, you better have a really good reason if you're not contributing to it, Beacham says.
"Do it because it's free money," she says. "The first 10 years of retirement savings are the most important because these dollars have 30 years to compound."
The money is taken out of your paycheck pre-tax and the earlier you start, the easier it will be to adjust to living without that extra cash. Plus, life doesn't get cheaper as you get older, "so do it now," Beacham says. "No income is too small for opportunity." If you don't have access to a 401(k), consider opening a Roth IRA instead or investing in mutual funds.
Treat yourself
It's OK to go out with your friends, try that trendy new ramen restaurant or save up for a vacation. Once you've covered the essentials with your finances, "don't worry if you goof up," Beacham says. That's what emergency savings is for (which could be number six on this list).
Put aside anything, even $20 a month, toward savings, for those times when your car breaks down or your body decides to have an unexpected health crisis (you'll quickly learn insurance only goes so far). You don't have to have a major goal like homeownership on the mind just yet, it's more about getting into the habit of saving, Carr says.
Then, treat yourself. "Use your money and plan a trip, go places," says Jo Webber, CEO of Oink, a money management platform for teens. "Later in life, there'll be things that tie you down and tie you to locations. Go see the world vs. buying possessions." Just don't charge it to a credit card you can't afford to pay off.