Papers turned in. Last exam taken. Degree in hand, one enters the world of post-graduation and career life.
Often, this is a time to start the foundations for the future but with the lack of financial literacy or the knowledge of how to run one’s own finances, this can not only seem daunting but a whirlwind of decisions.
“If people are more financial literate, individually, their personal lives would be in more harmony,” said Elena Zee, president and CEO of the Arizona Council on Economic Education. “If we are better educated financially, be more responsible about our own financial health, I think our families will benefit, business will benefit and our community will benefit.”
ACEE board member and financial consultant, Eric Harris said being able to budget by knowing what one is taking home in comparison to what paying obligations an individual might have is also one of the most important things to learn, especially if something bad happens, as it will allow an individual to rebound better.
Through the help of Zee and Harris, below is a list of the top 15 things every college graduate should know and do to be financially sound.
- Know your take home pay before designing your life (income after tax withholdings, payroll deductions for 401k contributions, medical insurance, etc.)
- Establish budget and keep track of spending. Open an online account to track spending and budget. Even better, get an App.
- Don’t spend all of your one-time income windfalls (e.g. annual bonuses, stock awards, gifts). Use at least a portion to pay off debt, fund emergency savings and/or retirement.
- Start building good credit and establish banking relationships. Apply for fee-free credit card that encourages good credit behavior. Open a fee-free checking account. Pay all credit card bills in full within the 30-day grace period to avoid high finance charges and be sure not to overdraft your checking account.
- Start saving for emergency to cover at least three months of living expenses in a savings account.
- Set long term and short term goals (e.g. living on your own, owning a car, buying a home, paying off student loan, vacation, further training or education, career goals) and have a plan to get there.
- Know the benefits offered by your employer and take advantage of them (e.g. retirement contribution matching. Medical. Free life insurance. Disability Income Insurance).
- Never be late on your payment obligations. Set up automatic payment deductions from your checking or savings account for rent, credit cards/loans, electricity bill, emergency saving, retirement saving.
- Check your credit bureau at least once a year. If you get a 30-day delinquency status on your report, work with your lender and/or the credit bureau to have it removed.
- Do not incur additional debt unless it is for higher education, car or home ownership. If you have debt, pay off those with the highest interest rate first.
- Compound interest and time are the most powerful tools to building wealth. Establish a retirement savings account and contribute every month as soon as you start earning income. The first priority should be to contribute to your company’s 401k plan (if they have one) up to the full match amount. Since they’re matching, you immediately get a 100% return on your investment.
- Do not lend money to friends unless you can meet your personal financial responsibilities without your friends paying you back.
- Keep your resume up-to-date and maintain a strong network of friends/co-workers from your industry. The reality is that even what appear to be strong companies have layoffs and go bankrupt.
- Be aware that future employers can find your online activity and postings. Make sure they don’t show you in a bad light.
- Plan for assuming your own medical insurance costs (parent’s plans typically only keep you on until age 26).
Razanne Chatila is a reporter for the Arizona Sonora News, a service from the School of Journalism with the University of Arizona. Contact her at razanne@email.arizona.edu.
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