Three Smart Money Moves For New Grads
Most states — 33 of them, in fact — don’t require high school students to take any personal finance courses. This lack of mandatory financial education leaves young people across the country woefully unprepared for the future. In a recent survey of college students, more than half of respondents cited money management as the life skill they felt least prepared to handle.
As a result, many new grads must take it upon themselves to learn financial basics before starting their first jobs out of college. Personal financial management skills are essential if new grads are to navigate the student loan crisis, prepare for retirement and develop sustainable budgets without relying on credit as a financial crutch.
At my company, we work with families of new grads from various financial backgrounds to create financial protection. If you’re a new grad, or the parent of one, here are three simple steps that help create a strong (and lasting) financial foundation for those just starting out:
Get the most out of a 401(k) plan.
One of the most important steps to financial success is to max out one’s 401(k) contributions as soon as possible, especially if the employer matches a percentage of employees’ contributions. Employer contributions reached an all-time high of 4.7% this year. Establishing a 401(k) account is a simple step, but few young workers actually do it. A 2018 report from the National Institute on Retirement Security found that 66% of millennials have no retirement savings.
New grads should aim to contribute as early as they can, even if it’s a small amount each month. One study found that delaying your 401(k) contributions until you are 30 could cost you roughly $250,000 by retirement, not including any employer match.
Employees who have questions about their employer’s 401(k) plan or company contributions can ask their HR manager. The financial advisor associated with the account can also offer advice on contribution amounts, investment strategies and when to increase contributions.
Build credit while maximizing rewards.
If they don’t have one already, new grads should consider opening credit cards to start building credit. In a survey that asked recent college graduates what they wished they had done differently after leaving school, many recent graduates said they regretted not building credit sooner.
And while building credit, cardholders can take advantage of rewards programs that fit their lifestyles and financial needs. There are three main types of credit card rewards programs: travel, points and cash back. Airlines usually offer credit cards that allow a person to redeem miles for free or discounted flights. Other credit cards offer points based on spending, which can be redeemed for gift cards or select e-commerce sites. Cash-back cards offer the clearest, most direct rewards by, you guessed it, giving back a percentage of the cardholder’s spend.
While it is important to build credit, spending within one’s means is essential. Nearly a quarter of American millennials have carried credit card debt for at least a year, while another quarter have carried credit card debt for two to five years. A consumer shouldn’t just swipe their card and forget it. The key is establishing a budget and not spending more than one makes.
Consider buying life insurance — yes, now.
Young people often assume that life insurance is only necessary for people who are married or have kids. That’s untrue.
This year’s graduating class faces a huge financial burden. Case in point: Student loan borrowers in the U.S. collectively owe almost $1.5 trillion. Did you know that a person’s family could be liable to cover their student debt if the person were to die unexpectedly? If the borrower obtained a private (versus a federal) loan and someone cosigned that loan, the burden would fall on the cosigner in the event of death. New grads should consider inexpensive supplemental life insurance to protect their — and their family’s — financial future.
Before purchasing a policy, it’s crucial to research options. Going straight to an agent could result in the agent trying to sell a permanent policy. These often require higher premiums and provide more coverage than most people need.
It’s tempting to delay financial planning. But while no one can predict the future, they can prepare for it. Making small, smart financial decisions early in one’s career can lead to big payoffs down the road.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
The mission of Next Steps Navigation is helping college graduates navigate the ups and downs of finding their place in the world, by finding their right next step. Recognizing the huge gap between getting a college degree and the realities of entering the workforce, we developed our coaching program to help families navigate this critical transition. We’ll meet you where you are and get you pointed in the right direction to choose a job – and a life – that you love.