How Your College Graduate Can Survive their First Semester of Adulthood

“Life as a financially independent adult comes with a list of questions,” says Melinda Beckmann, a client service associate with Palisades Hudson Financial Group and a 2009 graduate of the University of Rochester. “Are you going to open a savings account? Do you want to get a credit card? How will you pay off your loans?”

Just as you need to do research before writing a college paper, you need to do your research before you can make informed decisions about your financial future, she says.

Hmmm...whole life or term?

Start saving with your first paycheck

Set a reasonable amount to contribute to your savings account and take that amount out of your paycheck every time, before you think about spending anything. “You won’t miss the money and will easily build up your savings, even if you start small,” says Beckmann, who’s based in Palisades Hudson’s Fort Lauderdale office.

Set a budget

Make a list of all your monthly expenses, debt payments, potential future expenses and goals for retirement. Now you can start developing a budget to keep yourself out of financial trouble.

“In the beginning, you may need to focus on having enough for your rent, utilities, groceries, student loan payments and weekend spending money,” she says. “The key is to avoid spending beyond your means. A budget helps maintain control of your spending.”

Credit cards: don’t get caught in the interest spiral

According to a Sallie Mae study, 82 percent of college students in 2008 carried balances and were paying finance charges each month; 84 percent said they needed more education on financial management.

“If you have a balance when you graduate, start chipping away at it,” Beckmann says. “Try to pay your bill in full each month. By making the minimum payment, you are allowing the credit card company to collect much more for your purchases. Something that initially cost $150 can turn into $225 in no time. Never charge anything you know you can’t afford.”

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Be a smart insurance buyer

The average college graduate holds more than $20,000 in student loan debt. If you were to die before you pay off your loans, your co-signers may be stuck with the bill. Government loans do not survive death but private loans do. If you have them, it may be worthwhile to buy term life insurance, a form of temporary, affordable insurance that can cover you until you have paid off the debt.

Follow this example when determining whether other forms of insurance are necessary. Who will pay the bills if you become disabled or seriously ill? What if your apartment floods? How will you handle a car accident? Determine the areas of risk that you want coverage for, shop around, and read the fine print before signing.

Investing for retirement

If your employer offers a retirement plan such as a 401(k), take advantage of it. Some companies also match any contributions you make to your 401(k). “This is free money for retirement!” she says.

Stick to investing basics when starting with a 401(k) or other retirement account. Invest in three different index funds, such as a large-cap, a small-cap and an international fund. Index funds let you invest in a broad range of companies, while keeping expenses to a minimum. History shows that over the long term, you are likely to see much better returns by putting your money into equities than all in the bank, she says.

When you feel confident that you have developed a long-term plan, reward yourself. “You just finished your first semester of adulthood,” Beckmann says.

Palisades Hudson Financial Group is a fee-only financial planning firm headquartered in Scarsdale, NY. It offers estate planning, insurance consulting, trust planning, cross-border planning, business valuation, family office and business management, executive financial planning, and tax services. Its sister firm, Palisades Hudson Asset Management, is an independent investment advisor with about $950 million under management. Branch offices are in Atlanta and Ft. Lauderdale.