College may do a lot to prepare you for your first job and a life-long career but often it fails to reinforce the personal finance basics every grad needs to know to survive the real world and have a promising future. Personal finance basics are often left up to the graduates parents to tackle. While it is true that parents have a duty to educate their children on the how-tos of money, many parents struggled to understand finances as well. A large number of college students still come out of school with thousands in debts outside of their student loans.
Here are 6 of the basic personal finance must-knows that every new college graduate needs to grasp now:
Many recent graduates are focused on getting a job right out of school. While not all will score their dream job right out of the gate, many will still be able to find something to provide financial stability for life after college when parents wallets are no longer open. What many new grads fail to focus on the factors of a job outside of the paycheck.
It is important for new grads to understand the crucial aspects of a new employer’s insurance, retirement, and other benefits plan since grads leaving college are also leaving their parents health insurance coverage. New hires should make an appointment with the human resources staff and get a better understanding of what to expect from their insurance coverage and how much they will have to pay for coverage. As many young grads do not have major health problems, it is important for them to understand and utilize their coverage for annual examinations and preventative care. If your employer doesn’t offer health insurance to fit your needs, look at buying individual health insurance.
Grads that are focused on the ‘now’ may not have a clue about the distant future. Grads need to understand the importance of enrolling in their new employer’s retirement savings plan – either the 401(k) or the 403(b). With the new financial responsibilities grads face, many will not take an interest in ‘losing’ more money from their paycheck. With a lot of graduates having student loan debt, they have to decided between saving for retirement or paying down a student loan. However, the only sure way to have enough cash for retirement is to start growing their money early. Grads need to understand that employer-matched contributions are essentially free money for the future and if they are not taking advantage of this money, they are shorting themselves valuable cash. Some employers automatically enroll new hires in the company retirement plan at 3%. That’s a great place to start coming straight out of college.
New grads going out on their own may not be very familiar with handling their own tax responsibilities. Now that they are financially independent from their parents, they’ll need to understand how to organize their receipts and what expenses can be tax deductible. For instance, college grads that plan to relocate for their new job can take advantage of tax breaks offered by the IRS. There are other tax incentives grads can use to their advantage but they need to stay organized and ensure all their documentation is in order for tax time. It is also important they review their withholdings being taken from their pay to be sure it is adequate. Too much tax being taken out means less in a paycheck which can hurt day-to-day living even though a refund will eventually come. (If you get a refund, don’t waste it.) Too little taxes being taken out will mean the IRS will need a check at tax time.
You can’t get to work if you don’t have transportation. If the graduate plans to utilize their car for transportation, they will likely need to get their own vehicle insurance as parental policies may no longer cover them once graduation day comes. Grads need to understand auto insurance is a competitive industry and they can save hundreds of dollars a year by comparing auto insurance rates. Young drivers should also get an overview on what kind of coverage they need and be sure they are only paying for the services they actually will utilize.
For recent college grads moving out on their own, renters insurance is a smart way to ensure protection from unexpected events. Renters insurance is typically inexpensive (less than $20 per month) but can be a godsend in the event a fire breaks out in the apartment building and everything is ruined or lost. Without insurance, it can be very difficult financially to recover. It is easy to think “That will never happen to me!”, but imagine losing everything you own. Insurance will typically cover clothing, electronics, furniture, computers, and other personal belongings that will be expensive to replace without coverage. Insurance will also cover the renter’s liability should visitors get hurt in the rental apartment or house.
While a recent graduate may have tunnel vision when fresh out of school, it is important for them to understand the financial moves they make now will have an impact on the future. With the uncertainty around whether or not social security will be around in 40 years, grads need to know they are solely responsible for their financial future. In addition to a monthly budget, it is also important for grads to set specific goals for the short-term and long-term. Writing down specific benchmarks they want to reach in the short-term (buy a new car) and in the long-term (buy a house) along with the reasonable steps they need to take to achieve those goals can go a long way. It will also help to have this process become ingrained into their daily life so financial planning becomes a part of the rest of their adult life.