Congratulations, Graduates! What are your next steps, financially?Submitted by Austin Wealth Management | Durbin Bennett on May 25th, 2016
What recent graduates (and their parents) need to think about
Spring is here, summer weather has begun in Austin, and graduation time has arrived. Across Central Texas, students are finishing their high school, college, and even graduate school lives, after years of hard work, stress, excitement, and even some boredom.
Graduation is a time to celebrate. But what comes next? More school in some cases, jobs in others, and new financial concerns for all. It is important to think about your money at this time, make some rules you can follow and set yourself on a prudent financial course.
High School to College
Going from high school to college is a major step in anyone’s life. Public high school is free, aside from the fees and expenses for student sports, music, and other activities. However, college is not free, so how can we afford it?
Saving for college. It is, of course, best to start early when saving for college. In addition to working with Durbin Bennett, there are various online tools to help you calculate the future costs of college. Some of the best ways to save for college include:
- 529 College Savings Plans
- Coverdell Education Savings Accounts
- Prepaid tuition plans, at some colleges or universities
Student loans. Student loans are widely available to students of all types. About 70% of college grads leave school with student loan debt, at an average of $35,000 per student. Grappling with significant debt as you enter the real world poses financial challenges, especially if you have trouble finding a well-paying job after graduation. This makes it crucial to borrow only what you need and to choose the best loans for your situation. The student loan process may seem overwhelming at first, so use us and other resources to better understand how it works and become familiar with the types of loans available.
College to Career
College graduation is a time of hope for the future, but it’s important to say grounded when it comes to your finances.
So, how should you manage money after college? After you graduate, even if you have a high-paying job, you’ll find that life is not a financial wonderland. The best practices are to spend wisely by living below your means and to plan for the future, even though you’re only 22.
Dealing with credit cards. Living below your means can be hard, especially with all the credit card opportunities you will receive. The fact is, college students and recent grads receive dozens of credit card offers every month. The best strategies for dealing with credit cards include:
- Use a credit card only when you can pay the bill. Credit card issuers charge massive interest rates.
- Be careful about opening credit card accounts. The more cards you have, the more temptation to use them and go into greater debt.
- Guard your credit score. Monitor your credit reports and statements to make sure no one’s stolen your identity. You can monitor your credit for free by using Annual Credit Report: https://www.annualcreditreport.com
It’s important to know that credit cards can be useful. You need to build your credit history, but you also need to avoid rising credit card debt.
Dealing with student loans. You took out student loans because you knew it would be worth it to get your degree and career, but what should you do about paying your student loans back? It’s simple - pay the bill on time and make more than the minimum payment when you can. Use cash windfalls to help, apply any raises you get, avoid repayment plans if possible, but do consolidate and refinance if the opportunity arises. Also, don’t forget to take advantage of the student loan interest deduction. It’s possible to deduct up to $2,500 on your taxes each year for the interest payed on student loans.
So, with all this concern about debt, there has to be something good. Handling finances can’t just be about the drudgery of repaying debt. What about the upside?
When you’re making money, as a graduate in a new career, you can spend, save, give, and pay down debt. There are always opportunities to spend money, but it’s important to consider the best ways to save or manage it.
Amidst all the current expenses of living, eating, driving, marriage, kids, etc., there are important future expenses to consider. These include:
- Retirement - You just started your career, but it’s important to be ready for the day that it ends.
- Emergencies - Job loss, high medical bills, and family changes happen to everyone, so you need to set aside money for these big, unexpected events.
- Major expenses - You’ll want to save toward major, planned expenses, like a home, a new car, a vacation, or even your child’s college expenses.
- Debts - Paying down your debts on time and build a sound credit score.
- Giving - Be intentional about giving and making a difference for those causes you care about most.
The three best rules for graduates when it comes to financial planning success can be summed up by this:
- Spend less than you make.
- Save as much as you can.
- Don’t do anything stupid.
Remember, the financial decisions that you make at age 22 can either haunt you or help you when you are 42 and 62. Managing your debts and your savings can be a daunting proposition. However, with the proper guidelines and determination, you can set yourself on a prosperous and fulfilling life.
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. This material was developed and produced in part by Financial Media Exchange to provide information on a topic that may be of interest. Copyright 2014-2016 Financial Media Exchange.