Graduation is a thrilling and terrifying time for high school and college graduates alike.
Even with four significant years separating those monumental moments, five basic pieces of financial wisdom hold true for both sets of graduates.
If you have a child anxiously awaiting graduation this year, here’s what they need to know about their finances.
1. How to start a budget.
Budgeting 101 isn’t a common course in college, but it probably should be.
Fortunately, the basics of budgeting are quite simple (even if dislike all things numbers).
Spend less than you earn. Tweet this
The way to do this is to always understand how much money you have coming in and how much is going out.
Take 10 minutes to sit down with your graduate and map out their budget. Start by writing down their planned monthly income and subtracting it from their fixed expenses (car payments, student loan bills, rent). The remainder is the money they now have to spend on things like entertainment and food each month.
2. The art of saving.
Plenty of students and graduates shake their heads in disbelief when someone advises them to start saving. They wonder how that feat is possible with all of their student loan debt and notoriously small salaries.
But it’s still important to practice the habit of tucking aside money each paycheck.
Even if they can only afford to put away $5 a paycheck, the habit will serve them well in the years to come. Simply remind them as their salary increases, they can then increase the amount they put into savings.
If they are fortunate enough to work for an employer who offers an employer-matched retirement fund, encourage them to take full advantage of it. That’s an easy way to quickly pad their retirement fund without having to contribute more than their budget allows.
3. Keep debt at a minimum.
High school graduates have four years of college to avoid credit card debt and attempt to minimize student loans.
Graduating with the least amount of debt possible will give them the flexibility to take larger risks in their careers because they won’t be as desperate to earn money to pay down bills.
College graduates facing the impending weight of student loans should evaluate all their repayment options.
Make sure they are diligent about organizing all of their loans before the six month grace period is up. Income-based repayment programs for Federal loans and various refinance options on private loans are great options to help pay down that debt.
Additionally, remind them credit card debt cannot be ignored.
Those high interest rates can be killer. Any credit card debt amassed in college should be a top priority to eliminate in the months after graduation.
4. Credit cards are to be handled with care.
Both sets of graduates need to be diligent about their use of credit cards.
Credit cards can be a beneficial resource for building their credit score, but can also quickly become dangerous as it relates to creating debt.
Educate them on how to use their budget to ensure they don’t overspend on their credit card. Plus, why it’s important to pay the balance off on time and in full each month.
Steer them away from simply paying the minimum balance to avoid getting into a debt cycle by only incurring interest.
5. A strong credit history and credit score are essential.
Your credit history is a lot like a college transcript; it will follow you forever and impact your future. Tweet this
By building a healthy credit history and strong credit score, they’ll be eligible for the best financial products.
Plus, certain employers pull a credit report during the hiring process and most landlords (reputable ones at least) will run a credit check before allowing someone to sign a lease.
Handling credit cards wisely is one of the easiest ways to build a strong credit score. Tweet this
Student loans will also contribute to a credit score, but they won’t build their score until they begin making payments on those loans.
Take the time to study up
There are lots of ways to learn about finances: books, websites, blogs, podcasts and TV shows. Encourage your child to find which one appeals to them and focus on studying up.
Above all else, remind your graduate that money doesn’t have to be a stressful factor in their life.
By taking the time to learn the financial basics, they can eliminate a lot of anxiety around managing money.