By Kara Brockmeier, CFP
Congratulations, graduate! After spending years of your life preparing for post-school life, it’s finally time to put your knowledge and experience to test. Here are three ways to get started on the right foot to set yourself up for financial success post-college.
Many times, people open their first credit card in college or right after they graduate. 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 buy a home, purchase a car, etc. Therefore, it is important to make the right moves early on when it comes to handling debt. If you have credit card debt or any other high interest debt, consider paying that down.
Student loans are a main source of debt for college graduates. Student loan debt isn’t bad debt because it was used to pay for an education that helps you build a solid foundation. A college education can also help you land that dream job and gives you many opportunities to create the ideal life for yourself.
Student loans can be federal or private loans. Federal student loans are flexible with their repayment options and good for those who are in a career where they could receive student loan forgiveness. If you have a stable job that does not qualify for loan forgiveness, then you may consider consolidating your loans into one private student loan for a potentially lower interest rate.
Resources for tackling debt and refinancing student loans:
- Sofi for consolidating and refinancing debt (www.sofi.com)
- Credit Karma to help tackle credit card debt (www.creditkarma.com)
Once you have a handle on tackling high interest debt (which does not necessarily include student loan debt), then it’s time to start thinking about building your cash!
Ever heard the phrase “cash is king?” Well, it’s true. Yes, you may not be earning much on your cash. However, the value of cash lies in helping you survive the unexpected from a money standpoint without getting into more debt.
A good rule of thumb is to keep three to six months of your average monthly spending in cash. This cash will be the money you use to navigate those unexpected things life throws at you such as a car repair, the loss of a job, etc.
Resources for budgeting to help build cash:
- Mint helps track expenses and create a budget (www.mint.com).
- 50/30/20 Rule breaks your after-tax monthly income into 3 buckets: 50% Needs, 30% Wants, 20% Savings and Debt (https://www.nerdwallet.com/article/finance/budget-categories).
Once you have your cash covered, then it’s time to start thinking about investing!
One of the easiest ways to start investing is through a work sponsored retirement plan such as a 401k, 403b, or Simple IRA. Did you land your first gig? Are you still looking for that dream job? Either way, make sure to ask about the company’s retirement plan and if they offer an employer “match.” A “match” is when your employer contributes to your retirement plan based on the amount of your annual contribution.
You may also think about opening and investing into Roth IRA. Roth IRAs are typically good for younger investors that don’t need an income tax break now because Roth IRAs have the opportunity for long-term growth that won’t be taxed when you use the money in retirement.
Resources for investing:
- Work sponsored plan? Contact HR and figure out your options.
- Two websites that can guide you through opening a Roth IRA: Betterment (www.betterment.com) and Marcus by Goldman Sachs (www.marcus.com)
Tackling debt, building cash, and investing are three ways to get started post-graduation. These can be done one-by-one or all three can work together at the same time. For example, you can start tackling debt, while building up your cash, while taking advantage of your company’s retirement plan early on by investing the minimum amount required to receive the company match. Everyone’s situation is unique so consult with your financial professional who can be an additional resource to the ones provided in this article to decide which method is best for you to make sure you are on the right path.
About the author: Kara Brockmeier, CFP®
As a CERTIFIED FINANCIAL PLANNER™ professional, Kara strives to help you set 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 relatable way.