Tips to Help Your Grad Start a Budget
When children head off to college, they are leaving the nest for the first time. This is the first experience many will have with taking care of their own living needs, shopping for groceries and household goods, and also the first time many will encounter their own fiscal decisions. Once your child graduates from college, they are going to face numerous financial challenges. Helping them start a budget to keep track of their finances is the best tool you can give them. If you are unsure of where to start, here are some tips to help them setup a budget to follow.
Make Sure They Know They Are on Their Own
It is important to emphasize to your grad that they are on their own and responsible for their own finances. Remind them that as their parent, you will always love them and be there for them, but that it is now their time to take responsibility for their own life. This starts by encouraging them to balance their needs with their wants.
Spend Less than You Make
Living within financial means is often the toughest thing for many new grads. Until now, they have been isolated from financial distress, in many cases, by their parents. Living on your own means learning to spend less than you are making so they are assured of covering immediate needs like rent, food, utilities, etc. and even unforeseen issues like health scares or loss of a job. Encourage them to track their spending, save properly in a rainy day fund, and as Forbes points out, participate in an employer funded retirement plan or private investment plan early on.
Don't Forget Student Loans
Life comes with more expenses than just groceries, rent, and utilities. The expenses of living on their own two feet include dining out, entertainment, clothing for work, and previous debt. It is important for grads to understand where all their expenses are coming from, and that includes student loans. The longer loans are paid at minimum levels, the more your grad ends up paying courtesy of interest. If possible, see if they qualify for loan forgiveness programs.
Be Smart Now, or Suffer the Consequences Later
The financial decisions people make in their 20s often set the course for the rest of their life. Frivolous spending now can impact the next 15 to 20 years of their life. For example, traveling the world for joy rather than saving early for retirement can leave them way behind the curve on retirement savings.
Plan for the Unexpected
Life is full of unexpected bills, from a broken riding mower to medical emergencies not covered by health insurance policies. Even if your grad is not thinking ahead to buying a home and starting a family, waiting until those are imminent factors leaves them ill-prepared to deal with them efficiently when the time comes. Plan now and the unexpected will not seem so daunting to deal with.
Get a Credit Card, but Use It Wisely
Mint.com advises against taking on any unnecessary new debt, and for most Americans a credit card is the most dangerous source of debt. People spend and spend, ignoring the fact that something bought today will eventually have to be paid for. A credit card is a great tool for new grads because it helps them establish a positive credit record and a high credit score, however it can also affect decisions later in life if used improperly and lead to high interest charges or crushing debt if not effectively managed.
Your college grad has likely never made significant financial decisions to date in life. They are going to make mistakes somewhere along the line, but if you can help them start a budget and get on solid ground early, they are more likely to set positive financial patterns for themselves for years to come. For more information, please contact Hughes Warren.