May 01, 2012 11:42 AM EDT
Financial checklist for college grads
By Lynn Brenner
NEW YORK (Reuters) - Congratulations to the class of 2012 - you face an improving job market.
Employers say they'll hire 10 percent more new graduates this year than they did in 2011, according to the National Association of Colleges and Employers, so you may get a decent paycheck.
But landing that job isn't the only piece of the money puzzle. There's a slew of money moves you should be making now.
Here's a post grad to-do list.
1. Get health insurance. Sure, you're young and healthy, but an uninsured accident or appendectomy could crush your finances for years. The Obama health care law lets you stay on your parents' insurance plan until you're 26 - even if you don't live with them and you aren't their financial dependent - as long as you're not eligible for a policy at your job.
If your parents' plan isn't an option, look for alternatives at eHealthInsurance (http://www.ehealthinsurance.com) and the federal government's health resource website (http://www.healthcare.gov).
"At the very least, get a catastrophic plan so you're prepared for a serious accident or illness," says Beth Kobliner, author of "Get a Financial Life," a personal finance book aimed at 20-somethings.
2. Learn to budget. That first paycheck will feel mighty big, but it's got to cover a lot of expenses, says Sheryl Garrett, a Kansas City financial adviser and founder of the Garrett Planning Network of fee-only advisers.
You'll find great free budgeting tools at Mint (http://www.Mint.com). The downside: Advertisers see your personal financial data. For privacy, buy personal finance software like Quicken. You can jump-start your frugal lifestyle by living with your parents for a few more months and brown-bagging your lunch.
3. Find a better bank. Comparison shop for banking services at sites like Bankrate (http://www.bankrate.com) and CheckingFinder (http://www.checkingfinder.com).
Monthly fees can decimate an account too small to meet minimum balance requirements, so look for institutions that cut you a break if you opt for direct deposit of paychecks or agree to skip the branch visits and bank online. Include credit unions in your search; their fees often are lower and their rules are now so liberal you're almost certainly eligible to join one. (For more information, go to the website of the National Credit Union Administration, http://www.ncua.gov).
4. Start saving automatically. Most financial advisers recommend an emergency fund that equals three to six months of your living expenses. Sound hard? It's easier with an automatic savings plan: Ask your employer to transfer money from each paycheck to your savings account, or arrange for your bank (or a money market mutual fund) to automatically pull money from your checking account every month.
5. Organize your debt. As many as one-third of college graduates miss their first student loan payments, which are typically due after a six-month post-graduation grace period. That may be because they've moved without alerting lenders to their new address, says Mark Kantrowitz, publisher of Finaid.org, an informational website. "But payments are due even if you don't receive a bill," he says.
His advice: Make a list of your student loans now, notify the lenders of any change of address, and put a heads-up on your calendar a few weeks before payments are due. Better yet, arrange to have payments automatically debited from your bank account. That may shave your interest rate, too.
Consolidating your loans makes you less likely to miss payments, but it won't save you money. Kantrowitz says rates are actually likely to rise slightly when you pool your loans.
6. Manage all your debts. If you can't yet afford payments, call the lenders and ask about options like temporary suspension, deferment or forbearance. (The downside: Interest continues to accrue on suspended payments and is added to the loan balance.) With federal loans, you can reduce payments by stretching out the term of the loan. "Your monthly payment drops 34 percent if you extend a 6.8 percent loan from 10 years to 20 years, but your total interest more than doubles over the life of the loan," says Kantrowitz.
After you get a job, find out if you're eligible for the government's Income-Based Repayment plans (http://www.IBRinfo.org ), says Kobliner. "IBR is based on what you earn rather than what you owe. If you qualify, it can save you thousands of dollars over time."
The average student with loans also graduates with $4,100 in credit card debt, says Kobliner. "Ask your credit card company to drop your interest rate, or find a lower-rate card on NerdWallet (http://www.nerdwallet.com)or BillShrink (http://www.billshrink.com) and transfer your balance."
7. Build your credit file. Your credit score is based on the information in your credit report. Get a free copy of your credit report at the government-mandated site AnnualCreditReport. (http://www.annualcreditreport.com) and follow the site's directions to correct any errors in it.
It's smart to use a credit card as a convenience and to pay the balance in full every month. "Your goal should be to use credit wisely, not to avoid using it," says Anthony Criscuolo, a Fort Lauderdale, Florida, financial adviser. "Your credit report is like your financial resume, and you always want experience on a resume."
8. Max out tax breaks for long-term savings. "If you have a 401(k) plan with an employer match, between you and your employer you should try to save 10 percent of your salary," says Garrett. "If you do that from your first job to retirement, you'll be set."
If you don't have a 401(k) plan, Garrett advises saving in a Roth individual retirement account.
Finally, you can collect tax breaks for socking away money for graduate school by using a 529 college savings plan. After all, you may be headed back to school before you know it.
(The author is a Reuters contributor. The opinions expressed are her own. This is part of a six-story package on graduation.)
(Editing by Jilian Mincer, Linda Stern and John Wallace)
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