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Welcome to the Real World: Personal Finance Tips for New Grads

| July 26, 2016
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College Graduate

College graduation is a time for satisfaction, pride in the accomplishments of the previous years, relief from the burdens of classwork, and delight in the thoughts of the gainful employment that is to come.  For many students and parents, however, these feelings are quick-lived when reality sets in and the first student loan payment is to be made and the starting salary for the new college grad leaves them strapped. Undergraduate education can saddle students with tremendous debt and, in a competitive job market, they are not always able to land a job with a salary that will pay down the debt.

Other than a few words of wisdom from the commencement speaker, students are given very little guidance to navigate the often troubled financial waters that lie ahead of them.  As a parent, some of the best lessons you can teach your children are those that promote a healthy, strong financial future.  Here are a few of those invaluable lessons that you can pass on to your college graduate.  Trust us when we say this knowledge will benefit them far more than any graduation present you could give. 

P-L-A-N

Most college graduates are in the mindset of thinking they will never grow old or need a retirement savings.  However, planning for retirement should begin as soon as the ink dries on the diploma.  This one might take a little coercing, but attempt to instill into your child that saving just a small percentage of his income now will lead to essential savings later.  Waiting just five or ten years before starting to save could lead to a difference of hundreds of thousands of dollars down the road.  While contributing at least 10% of earned income is ideal, try to convince your graduate to at least contribute the percentage equal to the company match, if he has a company match 401k program. 

If this argument is not getting through, try this fact:

People who start saving for retirement in their 20s are 66% more likely to reach retirement by age 60 than those who started saving in their 30s.  Just about any 20-something will be enticed to work less and retire sooner!      

Tackle Debt Head-On

The average college graduate in 2016 left school with over $35,000 in student loan debt.  That is a cumbersome burden to carry around for most of your adult life.  It is crucial for grads to start tackling that debt immediately before it quickly grows out of control.  Missing payments is simply not an option and will only lead to an overwhelming battle.  Encourage your child to make student loan payments a top priority.  If it comes down to a brand new car or making student loan payments, the student loan should win out.  The U.S. Department of Education provides a wealth of information and resources for repayment options at: https://studentaid.ed.gov/sa/repay-loans/understand/plans.  If you want to be proactive, consult with a college planning specialist to discover innovative ways to save for and pay for college before your child even takes a class.  At Hengehold Capital Management, we are fortunate to have a Certified College Planning Specialist available to assist you with these unique financial goals. 

Know That the Unexpected Will Happen

Young adults usually think, “It will never happen to me.”  Whether it is a serious accident, a devastating illness, divorce, loss of job, or even bankruptcy, they just do not plan for any of these circumstances. However, statistics show they are more than likely to be affected by at least one of these circumstances.  Having a financial “cushion” is essential to smoothly handling these unexpected hiccups in life, rather than being completely sideswiped and left in a real pickle.  An emergency fund that could cover 3-6 months of basic living expenses is a good idea for anyone, especially a young adult starting out on his own.  While this may take a few months of tough saving to achieve, it is worthwhile and offers peace of mind for those unforeseen events that will come up.  Also, having health insurance is an absolute necessity and there are several ways that your child can secure it:

  1. Employer-sponsored plan
  2. Dependent coverage on your policy provided he is under 26 and single
  3. High deductible policy available through the Affordable Care Act

Don’t Overspend

It is enticing for young adults fresh out of college to start building a life with an expensive car, a place to live, vacations, and lots of shopping.  These behaviors can set your child up for failure right out of the gate.  Stress the importance of living within his means and sticking to a budget.  There are many helpful monthly budget planners available online (try this one: http://www.moneyunder30.com/really-simple-budget-worksheet) that can make the task easier and more manageable.  Help your child understand that having restraint in spending now can mean a much fatter wallet down the road. 

Choose A Bank Wisely


Most young adults have an ATM or debit card and are quite familiar with how these work.  It is also important to establish a relationship with a bank and start a savings and/or checking account.  Most employers utilize direct deposit, so this is going to be essential when starting a new job.  Have your child look for an account with either no fees or very low fees and also clear rules about overdrafts. Although credit cards can be dangerous and can even promote overspending, it is not a bad idea for your college grad to open a credit card and start building a credit history.  Urge him to avoid carrying balances on credit cards, rather to just use them as a way to build credit history responsibly.  Be sure he understands the stiff consequences and fees that come with late payments and the extraordinarily high interest rates for carried balances.     

Having a child graduate from college and head out into the world on his own is an exciting time.  Embrace this life event as an opportunity to educate your child in the lessons that lead to financial strength and independence.  If you find yourself struggling to get the point across or needing a little tutoring of your own, the experienced advisors at Hengehold Capital Management are happy to help.  Class is in session!

If you’d like to discuss setting up your plan for a strong financial future, please contact Greg Middendorf via email greg@hengeholdcapital.com or 513-598-5120.

Date Posted: 07/26/2016 Advice provided in this article is meant for educational purposes only and financial education is important to us.  Before making decisions regarding your personal financial situation, please consult an advisor or conduct your own due diligence.  If you would like to discuss your Retirement Income Plan with an HCM Wealth Advisor, please give us a call 513-598-5120.  Located in Cincinnati, Ohio, we serve clients in 28 states, and we’d love to help.  

 

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