Much about managing money depends on habit, so develop some good ones early.
The tassels have been turned and the mortarboards thrown into the air, and now many college graduates are on their own for the first time.
Their first step, financial experts recommend, should be taking stock of their finances.
“Grab hold of your financial life,” said Jill Schlesinger, a certified financial planner and “ambassador” for the Certified Financial Planner Board of Standards, which certifies and sets standards for planners.
Much about managing money depends on habit, she said. “If you form good habits early,” she said, “you continue them throughout your life.”
Paying off loans
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The top priority? Get a handle on student loans.
Most federal student loans come with a grace period after graduation — typically, six months — during which borrowers do not have to make loan payments. So use this time to make sure you have a repayment plan you can afford, said Diane Cheng, associate research director at the Institute for College Access and Success, a nonprofit organization.
“This is a really important time for recent graduates to get on top of their loans,” Cheng said.
Note the amount, the interest rate and the expected monthly payment of each loan, she said.
If the total is unmanageable, consider applying for a payment option that links your payments to your income. You will usually pay more in interest over the long term, but you will gain financial breathing room now. Recent federal data show that borrowers with the standard, 10-year student- loan repayment plan are more likely to have trouble keeping up with monthly payments than those in some other plans that tie payments to your income, Cheng said.
Also, she advised, update your contact information with your loan servicer — the company that collects your payments — to make sure you get statements and other information on time.
“Cash flow” analysis
Student loans, of course, are just one expense that new graduates face. Michael Eisenberg, a member of the American Institute of Certified Public Accountants’ National CPA Financial Literacy Commission, advises new graduates to do a simple “cash flow” analysis.
“How are they going to manage what comes in,” he said, “with what’s going out?”
For a first step, Eisenberg prefers an old-school approach: Get a piece of paper and draw a line down the center. On one side, write down the money coming in from your paycheck or part-time gigs.
On the other side, list the money going out. Focus first on fixed costs, he said — not just student loans but also rent, car payments, insurance and the like. Be sure to include an amount, even if it is small, for emergency savings. Then list variable expenses, like weekend getaways, summer vacations, perhaps saving for a special gift for a girlfriend or a boyfriend.
If there is a big gap between income and expenses, Eisenberg said, adjustments are in order.
If money is tight, new graduates can think about what they might do without, Schlesinger said. Do they really need a car and its associated costs?
Living at home, at least temporarily, is another option, especially if you get along with your parents and they are not charging you rent. Eisenberg said one of his own young relatives had chosen to live at home after graduation and to use the money that would have gone to rent to pay down student debt.
“Free is good,” Schlesinger said.
Schlesinger said that while living at home could be beneficial, parents and their new graduates should communicate about expectations. Even if you are paying rent, she said, “ask, ‘How can I contribute to the household?’ ”
Also, it is wise to discuss how long the situation is likely to last. If the child is thinking two years and the parents are thinking six months, conflict is bound to brew. “Define what’s reasonable,” Schlesinger said.
When you are ready to move out, getting an apartment with a roommate, or two, can help ease the transition and keep costs manageable. But keep an eye on spending, especially if your friends have bigger incomes than you do, Eisenberg said. Make dinner for friends at home, he suggested, so you can still socialize without having to pay for pricey restaurant meals.
Young adults are typically tech savvy, so digital tools — Mint and the like — can help track spending, Schlesinger said.
Levi Sanchez, a fee-only financial planner in Seattle who specializes in millennials (people now generally in their 20s and 30s), said he often suggested that his clients try You Need a Budget.
Sanchez said he recommended that new graduates make sure to take full advantage of any benefits offered by their employer, such as a 401(k) retirement plan. At a minimum, he said, try to invest enough in the 401(k) to get any matching contribution offered by the employer — often 3 percent to 5 percent. When you start making more money, you can save more.