This is Part One of a two part series on personal finance.
Any new graduate or young professional working for the first time has a lot to think about. Beginning a career in any field comes with many different responsibilities such as managing your personal finances.
It requires some know-how, but not many recent grads are fully prepared to tackle their own money issues right away. However, overlooking the importance of personal finances early on in life is a costly mistake.
If you’re just getting started down a career path, you can work to get your personal finances in order by following a few tried and true steps. The checklist below provides actionable items you can work on now, helping build a solid foundation of financial health and sustainability for years to come.
Manage Your Monthly Bills
For many recent graduates, managing expenses each month can be a challenge. It may be your first time paying bills! If that’s the case, don’t let bill-paying overwhelm you. You can use several different strategies to manage your monthly cash flow to ensure your bills are paid on time.
Some people opt to pay their bills (cell phone bill, car insurance, rent, or utilities) manually when a paycheck comes in. Often this method of bill-paying is easiest for those who have a good handle on their monthly budget. It helps you keep close track of your spending money and liabilities.
If you don’t want to bother with manually paying bills every time, consider automating the process. Many companies allow you to set-up automatic payments on or before the due date. They are drafted directly from your checking or savings account. Automating bills makes it easier to avoid missed or late payments, but you need enough money in the bank when those bills are paid!
One of the most important aspects of anyone’s financial life is credit. Your credit history and score are determined by your past financial activities, such as having a credit card or student loan and paying the bill on time each month. However, you may not have a high credit score without having previous credit accounts reported to the credit bureaus.
If you haven’t yet established credit, don’t worry. You can take small steps to build credit. Building credit requires establishing some form of a credit account, such as a credit card or a loan. There are numerous credit account options that are designed specifically for those who are just getting started, including secured credit cards and credit-builder loans.
Once you establish a credit account, be sure to have a plan for making payments on time each month. Keep the total amount of credit used to a minimum. These steps will help you build credit over time. With good credit, you may gain access to affordable financing offers in the future.
Address Your College Debt
In the United States, the student loan debt total continues to rise each year. Currently, at more than $1.5 trillion across 45 million borrowers, average student loan debt is closing on $30,000 per borrower. Student loans cannot be ignored, even if it feels overwhelming to think. The good news is there are a ton of options for managing your student loan payments each month.
For starters, consider making bi-weekly payments (every two weeks); throughout the year, you will make 13 full payments which puts you ahead of schedule. You may also consider the debt avalanche method if you’re dealing with multiple student loans.
There are also options for simplifying multiple loans. Some borrowers may refinance student loans into one lower-cost loan (lower interest rate). A successful refinance would leave a borrower with one single payment and potentially lower rate (as low as single digits). Keep in mind that only the most qualified applicants with high income and great credit can get these rates. An alternative is federal student loan consolidation, though private loans are not eligible.
Furthermore, federal student loans offer income-driven repayment plans. These cap payments based on a percentage of income which may be ideal for a new worker with low income and high payments.
Get Your Benefits Straightened Out
If you work for a company as a young professional, you may have access to certain benefits, including health insurance, life or disability insurance, a retirement plan, or transportation benefits. Each of these offerings will vary from one employer to the next, but it is essential to understand what’s available to you, the cost, and any restrictions associated with a specific perk.
You can ask your human resources contact or benefits manager at your company for a full list of offered benefits. They are also the right person to speak with if you are unsure of what a benefit is, how it works, or how it may help. Don’t be afraid to ask questions, and be sure to sign up for what you want or need with the help of your benefits contact at work.
Following this checklist will set you up for financial success early in your career, and lay the groundwork for being able to achieve the financial goals you have for the future. It’s not over yet though; check out part two when you get a chance
Andrew Rombach is a Content Associate for LendEDU – a website that helps consumers and small business owners with their finances. When he’s not working, you can find Andrew hiking, hanging with his cat Colby, or edge guarding in Super Smash Bros.