This advice is part of an InvestorPlace series inviting experts from across the U.S. to share their thoughts on aspects of finance that new graduates should know. Their words have been presented with little to no editing. Today’s entry comes to us from Amanda Gutierrez, a Financial Planning Consultant at eMoney Advisor, who spoke with InvestorPlace via email about financial advice for recent graduates.
New graduates should get ahead of the curve when it comes to financial education to set themselves up for financial success. At this point, there are new options and big decisions ahead that will impact their financial future. To get started, consider the following:
Spend less than you make. It sounds simple, but the financial habits you instill early will carry you far toward achieving financial security. Create a spending plan to track where your money goes and utilize tools — like budgeting and savings apps — from financial institutions for guidance.
Invest early. Even if it’s only $5 a week, invest as soon as your budget allows because the power of compound interest is on your side. Eventually, the goal is to save 15% of your salary in a retirement account, but oftentimes that is not feasible for new grads. Start where you can and increase contributions each year as you make more money.
Review student loans. It’s important to understand the terms and conditions of loans because this could impact you for the next 10 to 20 years.
Take personal development courses. Prioritize career growth that will lead to personal financial success as well.
Conventional investing advice still applies in today’s world. While it is okay to consider taking some risks at a young age because you have time on your side, it’s important to have a diversified portfolio and consider your entire financial picture through holistic planning.
When you have a financial plan, you are less likely to make reactionary financial decisions based on market volatility. By realizing the power of financial planning, investors can stay the course in their financial goals, plans and perspectives on what they want out of their lives and how to make their money work for them. Working with a financial professional will help you get started and stay on track.
New graduates should take a tactical approach to student debt. Typically, there is a grace period of six months after graduation to begin repayment. However, make sure to refresh your familiarity with the loan terms agreed upon before getting started. From there, look into possible repayment plans with your provider because federal loans offer flexibility and begin making payments once the grace period is over.
In addition, monitor the news for updates on student loan payments. Last year, the U.S. Department of Education placed a forbearance on federal student loans through September 2021 with 0% interest. Although it is tempting to stop making payments, take advantage of the opportunity to make payments toward the principle and accelerate how quickly you can pay down your debt. For more information, visit studentaid.gov.
If graduates are still covered by their parents’ healthcare policy, there may be time to evaluate options until age 26. However, for those who do not have coverage it is important to enroll in an employer’s plan. While the employee pays part of the premium, the employer makes monthly contributions that make it a far more appealing option than paying out of pocket for your own personal health insurance policy.
Take advantage of the employer match if your company offers a retirement savings vehicle like a 401(k) or 403(b), because it is essentially free money alongside your salary. Even though retirement is years away, the power of compound interest is extremely valuable. Additionally, employer-sponsored retirement plans often give you access to a retirement plan advisor who can provide additional guidance.
Review your employer’s disability offerings and consider supplementing it by purchasing additional coverage. This protects your paycheck in the event you are injured or seriously ill for an extended period of time — something that is more common than most young people realize.
Lastly, if you are interested in continuing your education or paying off student debt, some employers will cover the cost or match payments to ease the burden.