A: With graduation season drawing to a close, many recent graduates are making their first major decisions about the future – where to live, which job to take and how to spend their non-working hours. Stepping out on their own often comes with another big first – being financially independent. While this newfound control can be enjoyable, the added responsibilities may also be overwhelming. If your child is a new graduate, help him or her start off on solid financial ground with the following advice.
Study your employee benefits. For many recent grads, this is the first time they’ve been offered a 401(k), health insurance or the chance to purchase additional time off. Before enrolling in benefits, graduates need to research and understand their options. Gradates should remember that it’s okay to have questions, such as whether they should consider disability insurance or if a plan with a Health Savings Account (HSA) is the right fit. A good place to find information is through the human resources department or benefits provider. They will likely have the resources and staff available to help.
If graduates have questions specific to their financial situation, consider meeting with a financial professional. A financial advisor can provide objective advice and answers to more technical questions. Ultimately, graduates should have enough information and guidance to feel confident making their benefits selections.
Walk away from marketing pitches. One of the greatest financial risks for young adults is falling prey to special deals that sound too good to be true such as “zero-down,” “no payments until 2018,” and “buy one, get one free.” New graduates are prime targets for deals on everything from cell phone plans and furniture, to cars and houses. Graduates who are considering a purchase with a snazzy offer should ask the tough questions, “Am I ready for a new car, or am I considering a car because of this offer?” Those who decide to make a purchase should research the offer and compare it to competitors’ offers to make sure it’s a fair deal. In many cases the added interest and possible fees could make the price tag more than they “bargained” for.
Have a plan for your debt and credit. Graduates today have more student loan debt than previous generations, which means balancing their post-grad lifestyle with student loan payments is a top priority. Consider the value of consistently paying above the minimum amount due. Establishing this responsible habit can help avoid costly interest rate charges and late fees.
The same thinking should be applied to credit. It’s important for young adults to establish a good credit history, so opening a credit card can be a wise financial move. However, graduates should stick to one or two credit cards to avoid overextending their credit.
Develop a budget. New grads quickly learn that living on their own comes with a long list of expenses. And, that without careful planning it’s easy for their hard-earned paychecks to trickle away. Creating a budget can help young adults feel in control and accountable for their cash flow. Budgeting, while often a mundane task, allows graduates to ensure their money is being spent – or saved – on the items that are most important to them.
Christopher Zarra, CFP®, ChFC®, CFS®, is a Financial Advisor with Ameriprise Financial Services, Inc. in Rockville Centre, New York. He specializes in fee-based financial planning and asset management strategies and has been in practice for 22 years. To contact him, www.ChrisZarra.com, (516)764-0951, 119 N. Park Avenue, Suite 307, Rockville Centre, NY 11570.
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