Financial checklist for recent college grads

As a new college grad, you might be feeling a little bit overwhelmed when it comes to your money. Between student loans, trying to set up your first 401(k) at your first post-grad job, and making rent each month – your financial responsibility plate is full!

During this time of your life, you can think about several things that could pay off in a big way down the road. Let’s run through a high-level checklist of financial items for new grads to consider working on (or at least thinking about) to help get their financial lives organized and on track for long-term success.

Make the most out of your savings

Did you know that the cash you have sitting in savings could be earning more money in interest?

That’s right. High-interest savings accounts (or high-yield savings accounts) are a relatively new concept, and it’s smart to consider taking advantage of them. Here are three examples of banks that provide high-interest savings accounts:

This Annual Percentage Yield (APY) information is current as of January 5, 2019; however, APYs can change at any time. Please refer to each bank or company’s respective website for detailed information and for its current APY.

Although a 2.0-2.25 percent APY may not seem like a ton of interest to be gaining on your emergency fund money each year, it’s notably more than the 0.05-0.10 percent APY you may earn at other big-name banks. Many banks pay just 1/100 of one percent APY on savings.

High-interest savings account have FDIC insurance, allow transfers of money between accounts, and often have mobile apps. However, not all offer ATM networks and transfers might take 24-48 hours.

You work hard for your money, so it makes sense to consider opening a high yield savings account, to help your money work harder for you.

Pay down your debt

If you’re like 70 percent of Americans, you’re swimming in significant student loan debt. Over 44 million Americans hold $1.5 trillion in student loans – ouch.

You’ve likely already started thinking about how you can pay off your debt as quickly as possible. I like to view debt repayment strategies in two ways:

  1. The Avalanche Method
  2. The Snowball Method

In the avalanche method, you start by putting all of your extra money toward paying down your loan with the highest interest rate. Once that’s knocked out, you use the funds that were paying that loan each month to increase the amount you pay on your next-highest-interest loan. And so on until they’re all paid off. This method has the potential to save you the most money in interest charges.

If you snowball your payments, you start by paying the smallest loan off first. Then, you roll that monthly payment into the next largest loan to knock it out quickly. You keep going until all of the funds you’ve allocated each month for debt repayment are applied to your biggest loan. This method has the potential to be more motivating as you may reach your first milestone sooner.

You need a budget (really, you do)

Laying the groundwork and starting a budget now while life is still relatively simple is a must. Once you start thinking about relocating for work, moving in with a partner, getting married, having kids, buying a house or a car, and all of the other big life decisions that are yet to come – your budget is going to get more complicated, and possibly harder to stick with.

If you train yourself now to stick to a budget before you introduce these other factors into your life, you’re more likely to maintain healthy financial and budgeting habits throughout adulthood. If you need help setting up a budget, check out the YNAB (You Need a Budget) app.

To DIY your budget, a simple budgeting framework might look like this:

  • Retirement
  • Emergency Savings
  • Other Savings Goals (travel, home ownership, etc.)
  • Debt Repayment
  • Everything Else

Assign percentages of your income to those goals and automate contributions or payments when you can. If you want, you can certainly work to make a more detailed budget that includes everything from toiletries to travel, but that might be overkill. I prefer a simple budget because I think it makes life easier. When we automate good money decisions, like saving and debt repayment, we’re able to use the rest of our funds in a way that lines up with our lifestyle goals and values. We experience less decision fatigue, and we’re more likely to stick to our budget because it’s easy and not intensively restrictive.

Know your credit score

Your credit score is an incredibly important part of your financial life. Check your score regularly via a website like Credit Karma or Credit Sesame. Your credit card issuer or bank might also provide monthly credit score updates for free.

You should also check your credit report, since one in five people has a potentially material error on their credit report (an error that might be causing your score to be lower than it should be). You can get one free credit report from each of the major credit reporting agencies every twelve months. The only website that is authorized by the federal government to provide these free copies is annualcreditreport.com.

Having good credit will help you to:

  • Qualify for better interest rates that save you money in the long-run
  • Qualify for the apartment you’re interested in, a cell phone plan, and more

Several things make up your credit score:

  • Payment history
  • Credit utilization (your revolving debt balances compared to your credit limits)
  • Length of credit history
  • Credit mix (experience with different types of credit)
  • Recent inquiries (applications for new credit)

You’ve likely got a few things working against your credit score right now. First, your credit history isn’t very long. There’s not much you can do to change this. To improve it over time, keep your oldest line of credit open. That might be a credit card, or it might be your student loan.

Here’s a tip: credit accounts that are closed in good standing (i.e., paid off) remain on your credit report and contribute positive credit history for ten more years.

The best things you can do for your credit health now are consistently make debt payments on time and avoid taking on revolving debt (credit cards). Payment history and utilization are the most influential factors in your credit score.

Build your emergency fund

A solid emergency fund should hold about six months’ worth of your total monthly expenses. A good way to calculate what you need each month is to go old school – break out a pencil and a piece of paper and write down all of your monthly expense that are bare-bones(or must-have). Think: rent, utilities, groceries, health insurance, transportation, etc.

If it helps, look at your bank account or credit card statement to see what exactly you’re spending money on each month. Once you have your list complete, multiply the total by six. Start by aiming to have one month of your bare-bones expenses in savings. From there, grow it to three, and then to six months. After that, you can expand your savings goal to include the unnecessary-but-enjoyable lifestyle expenses that you might not want to cut if an emergency strikes.

Struggling to get started saving? You can make it easier on yourself by automating savings everywhere you can. This means you should consider contributing at least up to your employer’s match, if any, to your workplace retirement plan. Also consider setting up an automatic deposit to a high-interest savings account each time you get paid. If you can, a good goal is to shoot for saving 20 percent of your after-tax income. If that feels like way too much right now, don’t be afraid to start smaller. Saving something is always better than saving nothing.

Set goals for yourself

This is the most exciting part of your financial checklist. When you’re a recent grad, you have a long life ahead of you. Now is the time to dream big and start working toward some of those shoot-for-the-stars kind of goals you have. Where you can, try to assign a monetary value to these goals. For example:

Goal: I want to take a year off work before I turn 30 and travel the world.

Monetary value: The cost of travel expenses, health care, and an emergency savings.

Goal: I want to launch my own digital marketing business and monetized blog.

Monetary value: 12 months of living expenses and student loan payments saved, plus the cost for a new website, set aside for when I launch.

Goal: I want to buy a house with my partner in the next 5 years.

Monetary value: 20 percent down payment, 6-12 months of emergency savings, and an earmarked account with 10 percent of your home’s value set aside for potential home-maintenance costs.

Don’t be afraid to dream big. You have plenty of runway to make your financial life incredible in both the short and long term. Set your goals, and start actively working toward them. Remember: if you work on the items on this checklist, and automate where you can, you’ll already be well on your way toward financial success!

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Mary Beth Storjohann, CFP® and Founder of Workable Wealth, is an author, financial planner and accountability partner working to help clients in their 20s-40s across the country make smart, educated choices with their money. Her recent accolades include the “Top 40 Under 40” by Investment News, “10 young Advisors to Watch” by Financial Advisor Magazine, and “10 of the Best Personal Finance Experts on Twitter.” She frequently appears on NBC as a financial expert and her expertise has been featured in The Wall Street Journal, CNBC, Forbes and more. Opinions are her own.

Haven Life Insurance Agency offers this as educational information. Haven Life does not offer legal, tax or investment or tax advice and encourages you to seek advice from your own legal counsel, tax professional or financial advisor.

Haven Term is a Term Life Insurance Policy (DTC 042017 [OK1] and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. Policy and rider form numbers and features may vary by state and may not be available in all states. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Our Agency license number in California is OK71922 and in Arkansas, 100139527.

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