Simple steps 20-somethings can do to ensure a bright fiscal future
Despite a turbulent economy and job market, recent college graduates have much to be optimistic about as they leave campus and head into the real world. No one ever said life on your own was easy, but post-graduate financial bliss can be a reality. These six tips from Thrivent Financial offer a start for recent graduates who are ready to put their education to work for a secure financial future.
Get real about your paycheck: Compared to the minimum-wage jobs you survived on through college, the annual earnings at your first post-graduate job might give you dollar-sign eyes. Don’t be fooled; after taxes, benefits, living expenses and student loan payments, your remaining monthly spending money could amount to less than half of your gross income. Being realistic about your paycheck doesn’t mean you can’t have any fun, though. That new car might have to wait, but with smart budgeting you can still enjoy the finer things in life with a clear conscience.
Your credit score matters: Thought you were done worrying about test scores? Think again. Whether you want to get an apartment, mortgage, car or a new job, your credit score says a lot about you and can make or break these important steps. Free credit reports are available at www.annualcreditreport.com, and for a small fee you can also obtain your credit score. Examine your report regularly for accuracy, and pay off any existing credit card debt as soon as possible. Credit card interest is wasted money, and outstanding debt can hurt your credit score.
Look out for number one: After expenses and taxes, your paycheck might look too slim for comfort, but protecting your assets, health and income is worth the additional cost. If you have an apartment, renter’s insurance is a relatively inexpensive way to protect your possessions. Health insurance is also a must, whether you get it through your employer or stay on your parents’ plan. Your paycheck is worth protecting, too. Disability income insurance is not just for those with physically demanding jobs, as most beneficiaries are on disability from illness, not injury. Preparation for the unexpected comes at a small price considering the costs associated with the alternative.
Save for the fun stuff: Again, being responsible with your finances doesn’t mean you can’t have fun. You have worked hard to start your career, and deserve to reward yourself. The best way to spend smartly is simply to spend less than you have. Diligent saving allows for the occasional splurge without having to feel guilty or anxious about your decision to spend. Consider directly depositing a certain amount from your paycheck into a savings account for a “fun fund.”
Save for the grown-up stuff, too: Your parents’ nagging might slow down now that you’ve graduated, but their retirement planning advice is worth listening to. Start investing now, you won’t regret it. As you barely scratch the surface of your career, retirement seems a long way off, but successful investors understand that the longer your assets remain invested, the greater their potential for growth. The cash you forfeit now will pale in comparison to the amount you’ll end up getting back at the end of your career if you start as early as possible.
Don’t pass up free money: Many employers offer pretax savings through their retirement accounts. Because your retirement contributions come out before taxes, your taxable income is decreased, saving you money. For example, a $100 contribution from your earnings to a pretax retirement account would reduce your paycheck by only $75 if you’re in the 25 percent tax bracket. If your employer matches a percentage of your retirement contributions, it is wise to contribute the maximum amount of their match so as not to pass up on “free money.”
Money is just one of many aspects of adulthood that college graduates must meet head-on to start living independently. Personal finance might seem daunting, but don’t be discouraged. The above-mentioned tips boil down to common sense: spend less than you earn, stay protected through proper insurance, maintain good credit and save for the short and long-term, and you will be off to a great financial start in the next chapter of your life.
Thrivent Financial is represented in the local area by Dana Olson Erickson, ChFC, RICP, CASL. Her office is at 204 Third St. South in Stillwater and she can be reached at 651-439-7091.