You did it. Your college graduation is almost here. Let the adulting begin!With any luck, soon you’ll be earning real money. If you are Graduating College this year, consider the following Financial Tips to help you build a strong fiscal foundation.
Begin With a Budget
If you’re still in school, you might not be able to fill in all the blanks yet. But once you know your salary, you can create a budget. Include the following:
- Your take-home pay
- Student loans
- Health insurance
- Clothing, entertainment and everything else
The purpose of a budget is to track your earning and spending. The goal is to spend less than you earn and avoid debt.
Look Into Health Insurance
If you’re starting a new job, you may be able to enroll in health insurance through your employer- and it’s important that you know if that is a benefit you will receive. Alternatively, if you are covered by your parent’s plan, you can stay on it until you turn 26.
However, when you turn 26, you will age out of your parent’s coverage. If you have benefits through your job, you can enroll in health insurance through your employer’s program. If you don’t have employee benefits, you’ll need to find individual plans through the health insurance marketplace or an insurance broker.
Buying health insurance is limited to certain times of year. These include:
- When you start a job
- Within 60 days of losing health coverage (or turning 26)
- During the open enrollment period at work or in the health insurance marketplace
Normally, open enrollment for the marketplace is from November 1 – December 15 for coverage beginning the following January. This year, the government extended enrollment to help people who lost coverage due to the pandemic. For most states, open enrollment is February 15 – May 1, 2021, though some states have other deadlines.
If you miss the open enrollment period, you will have to wait until the next year to get health insurance. In the meantime, short-term health insurance could fill the gap. These are emergency health plans available outside of open enrollment. Short-term health insurance is less expensive than comprehensive insurance but covers a more limited range of services.
Look at Your Loans
Student loans are a big obligation for many new graduates. Familiarize yourself with the details of each loan, including the following:
- Loan type (federal or private)
- Amount borrowed
- Interest rate
- Loan services
- Payment start date and amount
- Repayment options
If your monthly payments are too high in proportion to your earnings, federal loans let you apply for a plan that lowers your monthly payments. This will extend the length of the loan and cause you to pay more in interest. Student loan rules are often updated, so it’s important to check the Federal Student Aid website for current information. Private student loans typically do not have as many payment options.
Lenders use a FICO credit score to rate applicants. Achieving a high credit score saves you money. You pay a lower interest rate on credit cards, mortgages or auto loans. Most people get into trouble because they don’t understand how credit scores are calculated. Here are the factors used, according to Experian, a credit reporting company:
- Payment history: always pay your bills on time. Payment history accounts for 35 percent of your credit score.
- Amount owed: it’s ironic that lenders give you a credit limit, then penalize you for using it. If your balances total more than 30 percent of your available credit, it hurts your credit score. Credit utilization accounts for 30 percent of your FICO score.
- Credit history length: 15 percent of your score is based on how long you have held your credit accounts. The longer the credit history, the higher your score.
- Credit mix: people with high credit scores have used diverse types of credit accounts, such as an auto loan, student loan, mortgage or other products. This item accounts for 10 percent of your credit score.
- New credit: if you have recently opened accounts or applied for credit and had your credit report run, it can hurt your credit score. This element comprises 10 percent of your score.
With these factors in mind, be mindful of these key takeaways:
- Student loans: help establish credit, assuming you pay them on time.
- Account balances: pay your balance in full each month. If you can’t pay it in full, keep the balance below 30 percent of your credit limit.
- Avoid credit: use one general card for everything, not department store or gas cards. If you need an auto loan, for example, try to pay off other accounts first.
Pay Yourself First
If the pandemic year has taught us anything, it’s that the unexpected happens. Layoffs occur. Cars break down. These can all impact your finances. It’s important to build a savings account to give yourself an emergency fund. An easy way to do it is to automatically transfer cash into your savings account each pay period. Aim to save enough money to cover six months of expenses, as this can help you avoid going into debt.
Save for Retirement
If your employer offered to give you several thousand dollars a year in free money, you’d take it, right? That is what happens in many corporations when you contribute to a 401K retirement account. Many companies will match your contribution, up to a certain amount, such as 4 percent of your pay. Experts recommend contributing to your 401K fund up to the amount your employer matches. It’s never too early to invest in your future.
Be Frugal with Fun
The expense of starting out might leave you struggling to stay within your budget. To keep your entertainment costs low, look into free or inexpensive activities. Save money on food by learning to cook. Visit bars during happy hour to enjoy discounted drinks. A year of being home has taught us all the value of Netflix and Hulu for inexpensive movie nights. Find out when free museum days are in your city or join a free workout group. Also, don’t forget to use the public library to borrow books, movies and music.
They may seem overwhelming, but these financial tips for college graduates are really simple. Make a budget, get insured, pay your bills and start saving. Having a plan helps you make good financial decisions and avoid costly mistakes.