My oldest child will be graduating from college in a few months and I was wondering what is the best financial advice I could give him as he is starting out in life. I came across an interesting article on www.forbes.com that discusses things a college graduate should do within the first 5 years after graduating college. There are so many changes that take place after graduation and I will discuss a few ways to minimize the financial pressures new college graduates may face.
My family’s situation might be different from others but I am thankful to say that my son will come out of college with no student loan debt. My husband and I tried to plan ahead for college so that my son wouldn’t be burdened with student loans once he completed his college degree. Thankfully, it paid off for us. If your situation is different, don’t give up yet. There is certainly hope just around the corner. I listened to a Dave Ramsay radio show the other afternoon and a couple had paid off all of their student loan debts within a few years after graduation
Here are a few pieces of advice I would like for my son and other recent college graduates to follow that was listed in the Forbes article:
1) Create a cash reserve – We all know and have probably experienced Murphy’s Law: “Anything that can go wrong, will go wrong.” Just when it seems like everything is going fine, something happens that almost derails our finances. One way to minimize the effect is to have a cash reserve built up. I would venture to say that many people now have cash cushions that were not prepared for the impact of the 2008 Subprime mortgage crisis when housing prices fell and other effects caused the stock market to drop and the economy to go into a recession. My husband and I were fortunate enough to keep our jobs but the thought of one of us losing our jobs was a bit frightening. We now try to keep a solid cash cushion. New college graduates need to begin building that cash reserve. Most experts agree that 3 to 6 months worth of living expenses should be set aside as a cash reserve.
2) Check on health insurance – If a student has been on his parents’ insurance plan it would be wise to check on how long the coverage will continue under the parents’ plan. Some plans will now cover longer periods than were previously covered so contact your insurance company to get the details. It would only take one major medical event to cause a catastrophe with your finances.
3) Consider opening a retirement account – It is never too early to begin saving for retirement once you have completed college. Time is definitely on your side so take advantage of the growth you will receive from investing early! By simply contributing a few dollars each week, your contributions can grow enough to let you live an extremely comfortable retirement. I don’t want to have worked for 30 or more years to find out that I will not have enough to cover my expenses in retirement. I want to be able to travel and help others in retirement so planning is key
4) Set a goal for paying off student loan debt – Don’t just accept the fact that you will always have student loan debt. Make a plan to pay it off quickly and stick to the plan If you don’t have a goal, you will probably not pay it off as quickly as you could. With the interest rate on student loan debt at around 6%, you will be doing yourself a favor by paying it off early and saving interest.
While there are certainly more financial areas that new college graduates need to consider, these are a few that I consider to be most important. To the recent college graduate, I say to make a sound financial plan for your future. If you don’t feel equipped to make all the decisions on your own, find a financial planner in your area to help you. It will be worth the time and effort!