If you have recently completed your formal education, you presumably have many of the skills and much of the knowledge you'll need to make money. Unfortunately, despite all those years you spent sitting in classrooms, you might not have learned enough about how to manage money—a reality that could set in once you make your first student loan payment or experience a financial emergency. There are a few good ways to lay the groundwork for a lifetime of financial well-being.
Weatherproof your finances. Once you land a job and start earning income, get to work building an emergency fund to cover your expenses in the event you lose your job, need to repair your car or run into some other unexpected financial bind. Aim for having enough set aside to cover three to six months of expenses, but realize that a lesser amount of cash is better than nothing and will help you avoid overusing credit cards to stay afloat. Keep your emergency fund in a safe account that you'll be able to tap quickly and easily, like a money market account at a bank or a money market mutual fund.
Reap the benefits of your new job. You need to do it as soon as possible after you start your new position, visit the HR office to learn about and sign up for benefits offered by your employer. In addition to retirement, health care, disability and life insurance coverage, check out any other perks that might save you money, like discounts on a gym membership or wireless plan. Consider putting any money you save on such expenses into your emergency fund.
Home in on where you'll live. Think about what your living situation might be for the next few years. Will you live with your parents, with one or more roommates, or by yourself? Living with your parents or a roommate will help you keep costs down, making it easier for you to build an emergency fund, but you might face constraints on your freedom or compatibility issues. Living on your own will probably afford you greater independence, but you'll take on greater expenses, too. There are no right or wrong answers here, but understanding how to make tradeoffs that work for you will help you free up the money to start you on the road to financial freedom.
Start saving for retirement. (Yes, retirement.) It’s difficult to think 35 to 40 years into the future when you might be concerned about how you will pay all your monthly living expenses today. But if you start putting even a few dollars per paycheck now into a workplace retirement plan or IRA, you'll get into a habit that will serve you well throughout your working years. In addition to that, you’ll give yourself more time to take advantage of the power of compounding: the process in which earnings potentially create more earnings, leading to a snowball effect that fuels the growth of your savings. Of course, investing carries some risk. But someday you will thank yourself for getting an early start on saving for your future.
Meet your match. Many workplace retirement plans feature an employer match, in which your employer adds to your account balance by matching all or a portion of what you put into the account. If your employer offers you a plan featuring a match, try to contribute at least enough to get the full match. If you can't quite manage that, put as much as you can into the plan, because it's always better to save something and build your nest egg over time than to save nothing. An employer match is free money. And bear in mind that most workplace retirement plans are portable, which means you can take your savings with you when you change jobs.
Live within your means. Each dollar you earn ought to come with a warning label that reads, "Handle with care." Don't spend at levels you can't afford. Find ways to do more with less. Avoid all the stress that would inevitably result from mounting debt and oversize bills by deciding, as soon as you get your first paycheck, what your spending priorities are. For example, which would you rather have: a year's worth of cable TV, or the ability to join your former classmates on a trip to homecoming weekend?
Know your student loan repayment options. If you left school with substantial student loan debt, gather your loan documents and contact the lender to learn about all your repayment options. A standard repayment plan calls for you to pay a fixed amount every month for 10 years, but there are other options as well. For instance, you can choose to have your payments start out low in the early years but then rise, which is a good plan for grads who may be financially strapped now but expect their income to rise substantially over the next decade or so. You can also pick an extended payment plan, which gives you a longer time period to repay the loan and a lower monthly payment. Or you can request a deferment or forbearance of your loan payments if you're unemployed or otherwise can’t make your scheduled payments. A deferment excuses you from making payments for a set period of time during which interest will not accrue. With forbearance, the lender lets you either make reduced payments or stop making payments altogether for a given time, and interest will accrue during that time. However, expect some pitfalls if you choose any option other than standard repayment. For example, you may well pay more total interest over the life of the loan and thus increase your overall cost to borrow.
By heeding this guidance, you'll be more likely to achieve something everyone wants: a worry-free financial future.
This material is for informational purposes only and the statements represent TIAA-CREF's interpretation of applicable law. It is presented with the understanding that TIAA-CREF (or its affiliates, distributors, employees, representatives and/or insurance agents) is not engaged in rendering legal or tax advice. This material should not be regarded as a recommendation or an offer to buy or sell any product or service to which this information may relate. Certain products and services may not be available to all entities or persons. Past performance does not guarantee future results.
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