To the millions of college and high school seniors who recently graduated (and to their parents, who weathered the ups and downs of reaching that summit): Congratulations on a job well done. After the celebration dies down, you'll no doubt be eager to embark on life's next chapter, whether it's finding a job, preparing for college or enrolling in military or community service.
Before you jump in feet first, however, let me share a few financial lessons I learned the hard way when I was just starting out. They might save you a lot of money in the long run and help you get closer to your life goals, whether it's buying a house, starting a family or even retiring early -- as far off as that may sound.
First, pretend you're still a starving student. After landing your first full-time job, the urge to go on a spending spree for new clothes, a better apartment and a car from this decade will be irresistible after surviving on ramen noodles for four years. But unless you had generous scholarships or a rich aunt, you're probably already saddled with thousands of dollars in student loan debt.
(Note to entering freshmen: Tread carefully around student loan debt. The Consumer Financial Protection Bureau has a great guide for making informed decisions about paying for college.)
After you've factored in rent, car payments, renter's and car insurance, credit card charges, student loan balances and other monthly bills (not to mention payroll taxes such as Social Security tax, which went up 2 percent this year), your new salary probably won't go as far as you'd like, especially if you're trying to save for one of those life events.
That's where a budget can help. Numerous free budgeting tools, including interactive calculators, are available at such sites as the government-sponsored MyMoney.gov, the National Foundation for Credit Counseling, Mint.com and Practical Money Skills for Life, a free personal financial management program run by my employer, Visa Inc.
Next, know the score, credit-wise. Many people don't realize until it's too late that a poor credit score can trash your financial future. After you've missed a few loan payments, bounced some checks or exceeded your credit limits, you'll probably be charged higher loan and credit card interest rates and offered lower credit limits (if not denied credit altogether), unless and until you can raise your credit score. You may even have to pay higher insurance rates and harm your ability to rent an apartment or get a cell phone.
To know where you stand, review your credit reports from each of the three major credit bureaus (Equifax, Experian and TransUnion) to find out whether any negative actions have been reported and to look for errors or possible fraudulent activity on your accounts. You can order one free report per year from each bureau if you order them through AnnualCreditReport.com; otherwise you'll pay a small fee.
To learn more about credit reports and scores, visit Ask CFPB. Another good resource is What's My Score, a financial literacy program for young adults run by Visa, which features a free, downloadable workbook called Money 101: A Crash Course in Better Money Management, a free tool to estimate your FICO credit score and Welcome to the Real World money guides on topics such as student loan repayment, finding a job, paperwork and taxes, and budgeting.Speaking of student loans, here are a few repayment tips:
- Most federal loans offer six- or nine-month grace periods before repayment must begin, but many private loans do not. Carefully review your loan documents to see where you stand.
- If you've moved, let your lender know; otherwise late charges could start accumulating.
- Ask whether your lender will reduce the interest rate if you agree to automatic monthly payments or after you've made a certain number of on-time payments.
- If you anticipate repayment difficulties, contact your lender immediately to try and work out an agreement to defer payments, extend the loan's term or refinance at a lower rate.
- Many people with federal student loans who are low-income, unemployed or working at low-paying, "public service" jobs in education, government or non-profits qualify for income-based repayment, where monthly payments are capped relative to adjusted gross income, family size and state of residence. To learn more, visit this Department of Education site.
- Also, read IRS Publication 970 for information on deducting student loan interest from federal income tax. In some instances, you can deduct up to $2,500 in interest even if you don't itemize deductions.
You worked hard to graduate. Just make sure you don't sabotage your efforts by starting out on the wrong financial footing.
This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.