So, you made it through college, congratulations! You’ve now graduated and gone on your victory lap throughout Europe with your best pals. Did you have the money to do it? Not really, but you did have credit cards. Thus, begins your financial life as an independent taxpayer: welcome to adulthood.
Unfortunately for many of us, post-graduation trips aren’t the first big expense we’ve paid for with federal loans. Student debt is sitting there unattended, mercilessly gathering interest. Where do you start? And what about all the other stuff you must pay for now that you’re a bona fide adult? Here’s a rundown of our best tips for putting your best financial foot forward in your new life as a post-graduate. More so, your new life as an adult.
The question isn’t if you’re going to pay them off, it’s when. Sure, were you to win the lottery, you would kiss your student debt goodbye. But most young people take years to pay off what they owe.
Until you’ve made a plan, the elephant in the room will always be dealing with your student debt. Generally speaking, you have 6 months to start the process of paying off your student loans. While exceptions exist, your two options for payment are:
- a 10-year plan with a fixed amount due
- a 25-year plan with amounts due that vary in accordance to your income
The shorter plan is usually more popular because it guarantees that you won’t be carrying the debt into your thirties, when you may be planning for expensive life changes (we’re talking about kids).
Create a Budget and Stick to It
With your new plans to pay off your debt in mind, you’ll want to track your spending. Set a monthly budget for yourself and honor it. Make sure you take into consideration taxes and retirement withholdings. Your salary is not the actual amount of money you have to spend. Your salary minus taxes and various insurances is actually what you have to work with to cover rent and monthly expenses. Understand that not paying your taxes is not an option, as interest and penalties will accrue. It is important to seek out IRS back tax help if you have unpaid taxes on your record.
Get a Credit Card
You probably already have one, but if you don’t, you’ll want to get going as soon as possible. Maybe you’ve been holding off because you’re afraid of how much you’d spend. That’s fair, but the truth is they can be helpful—even if you rarely use them. Credit cards are essential for maintaining a good credit score, which you need when leasing a car or even applying for an apartment. Not only could you miss out on these opportunities because of a poor credit rating (or none at all), you will lose money when you seek out loans later in life.
Pick a card that includes rewards like air miles or cashback. That’s the rewarding facet of credit cards, so take advantage of the perks.
Until you turn 26, you can stay on your parents’ health insurance. After that, you must find coverage elsewhere. Ideally, your job includes benefits. Unfortunately, young people are often hired for part-time and hourly positions that do not offer benefits. You will have to find a health insurance plan that works for you, or pay the Affordable Care Act’s penalty when you file your taxes. Note that although the current administration has repealed the bill, the tax penalty remains active until 2019. Who knows what will happen in the future.
You may have been saving a little through college. But now that you are entirely responsible for your own finances, it’s a good idea to put money aside in case of an emergency. How much you decide is up to you and your means, but you’d be in great shape if you can afford a cushion of 6 months to a year of spending money.
Take out a set amount of cash every week and spend only that. Holding concrete bills helps to keep track of how much you’re spending and how much you have left in your budget. You may get to the end of the week with a measly dollar left. Don’t be too hard on yourself, this is all new territory! You’ll get the hang of it with practice. Even if you end up taking more money out or paying with your credit or debit card, holding those dead presidents in your hand will inspire you to think a little more about where the money is going. Hard cash really helps shape our perspective of how much life actually costs.
Plan for Retirement
Financing your retirement is probably the last thing you want to hear about right now. Unless you work at a company that provides you with a 401(k), it’s up to you to plan your future. As is the case with most financial health decisions, the sooner you face the music, the better off you’ll be. Saving as little as $50 per month in your twenties puts you at a significant advantage compared to your peers who aren’t thinking ahead.