Set aside the books, put away the papers – You’ve graduated! This is a time for new beginnings. As you move on from school and enter the workforce, these tips can help you make a strong fresh start financially.
Get a handle on student loans. If you’ve graduated from college, you may be among the 44 million borrowers who carry student loan debt. If you were able to start paying off your loans while you were in school, that’s great news. If not, don’t worry. Starting now, take stock of your accounts and create a plan to move forward.
If you have unsubsidized loans that started accruing interest right away, versus subsidized loans that didn’t accrue interest until you graduated, pay off the unsubsidized ones first. For all loans, know your interest rate. And, be aware if you’re being charged capitalized interest, which basically means you’re paying interest on your interest.
Then, try to consolidate debt if possible or concentrate immediately on paying down the loans with the highest interest. Put as much as possible toward the principal on your loans. This may involve paying more than the minimum monthly payment and paying any extra amount as soon after your due date as possible, which can reduce the amount of time interest accrues. For all loans, sign up for automatic recurring bill pay so you don’t fall behind.
Start a relationship with a bank. Chances are you’ve had a checking account or savings account with a bank for years. But entering the workforce is a good opportunity to get to know more of what your bank offers for loans, investments and money management. If you’re looking for a new bank, make sure they have the features that are important to you. Experts say about 30% of Generation Z prefers to find information online rather than interact with a business representative. If you can relate, look for a bank that’s ahead of the curve when it comes to digital banking. This can mean online bill pay, a mobile app, account alerts, paperless statements, and the ability to make deposits and pay bills from your phone.
Build up your credit – responsibly. It is indeed important for new graduates to pay off student loans, and it’s recognized that too much debt is not a good thing. At the same time, it’s essential to start building credit and a solid credit rating. A good credit score is important not just to future lenders, but to landlords, employers, and insurers. The better your score, the more likely you’ll be to get that apartment you want or to close on a good mortgage rate when you’re ready to buy a home.
If you don’t already have one, apply for a credit card to start establishing your credit history. Look for one with a low interest rate and a low or no annual fee. Then, start to use it within your budget, making sure you don’t run up too high of a balance. Every month pay on time, every time, by setting up an automated payment through your bank. Another option is to get in the habit of paying off your balance every month and using the card for its other benefits like rewards or airline miles.
As you use your credit, pay attention. The more you use, the more invitations you’ll get for more cards. Choose wisely, and don’t over extend yourself. Check your credit report regularly for any mistakes, and when you do pay off a credit card, avoid closing the account. Because 15% of your credit score is based on the length of your credit history, it is often a better idea to keep the account open but carry a small or zero balance.
Create a budget and start saving. Finally, now that you’re out in the workforce and making money, the real work begins of creating and sticking to a budget, which includes saving.
Experts recommend the 50/20/30 rule, which basically calls for divvying up your after-tax income, allocating 50% to needs, 30% to wants, and 20% to savings. Needs include expenses such as rent or mortgage, car payments, food, insurance, student loans, health care and utilities. Wants are the extras such as entertainment, cable TV and dining out.
Twenty percent to savings means allocating money every month for an emergency fund in a savings account. This is also a good time to consult your bank about other savings vehicles that offer more competitive rates such as IRAs, 401(k)s or mutual funds. Making extra payments toward a student loan can also count as savings because it will reduce interest charges over time.
Remember, as you enter the workforce and start earning money, it’s not too early to think about your financial future. For more information about products and services to get off to a great start, contact us.
