Finance

Financial Tips for New Graduates

If you are a new graduate, a college degree is just the first step in the new direction your life will be taking. A new career, potentially a new community to live in and a bit of cash in your pocket to spend – there are a lot of changes happening. College graduates carry an average of $25,250 in student loan debt, according to The Project on Student Debt, by The Institute for College Access and Success. Compiled with this debt are the potential expenses of job searching, moving, a professional wardrobe and a new car or bus pass. But receiving that first paycheck – and subsequent paychecks – can lead to bad financial management if not properly handled, says John Vaccaro, Senior Vice President from Massachusetts Mutual Life Insurance Company (MassMutual). “New graduates should curb their urge to spend freely and think about their future goals to avoid financial setbacks like credit card debt and spending beyond their means,” Vaccaro says. To help prevent new graduates from sinking deeper into the debt hole, and to look ahead to saving for retirement, Vaccaro has some financial planning tips to help grads get the most out of their new paychecks. Develop a budget – Almost half of Americans report they’re living paycheck to paycheck, according to a recent CareerBuilder Survey. New graduates should create a budget, including all expenses from rent/house payments, to haircut costs and weekly groceries. Also include space for savings – if possible. Categorize each expense into a necessity category and a discretionary spending category, which will help highlight areas where expenses could be cut – if needed. For example, are payments for cable or satellite TV necessary, or could you survive with free local TV and a less expensive subscription for wireless or mail delivery movie rentals? Setting up a budget can help a new graduate determine if more money from a paycheck can be put into savings. Look into work benefits – The first job is a learning experience for many in figuring out benefits and making them work. Recent graduates should take advantage of any employer offered retirement plans like 401(k)s as soon as they qualify. For younger new grads, the combination of time and potential for a retirement account to grow are powerful in planning for retirement down the road. Health, life and disability income insurance are also good benefit options to research. If your company doesn’t offer these kinds of benefits, consider obtaining coverage independently. Pay off the right debts first – Debt can occur in a lot of different forms for new graduates. Car payments, student loans, mortgages and credit card accumulations are a few of the more common forms of debt. It’s a good idea to pay off those debts that have the highest interest rates and are not tax deductible first. Ideally, a person should have enough savings on hand to pay off a short term debt, like credit card purchases, on a monthly basis. Rein in spending habits – Look yourself in the mirror and identify your spending habits. If you like to impulse buy, try forcing yourself to delay impulse purchases by 24 hours. Also determine if your spending habits are influenced in any way by emotional factors or peer pressure. Once these habits are identified, it’s easier to establish ways to circumvent bad financial decisions. —(ARA)

Financial Advice

Myth and Fact: What you need to know

For all of the hard to know discussion around the importance of what’s true, what’s fiction, and what credit scores, it’s lies in between. about credit scores While there are mis-perceptions and misunderstandings still lingering in the marketplace, the good news is that overall knowledge about credit scoring is improving. A recent survey by the Consumer Federation of America (CFA) and VantageScore Solutions, one of the two primary companies that generate credit scores, shows that consumers know they have more than one credit score, have a better understanding about the factors that affect credit scores, and have increased familiarity with how different kinds of companies and entities use credit scores. Consumers also have a good handle on some recent additions to federal laws regarding when lenders are required to inform borrowers about their credit scores. “Increases in consumer knowledge probably reflect, in part, the increased public attention given to credit scores because of the new protections,” says Stephen Brobeck, executive director, CFA. “The improvements may also be related to increased efforts of financial educators, including our own educational website, creditscorequiz.org, to inform consumers about credit reports and scores.” However, despite the positive developments, there’s room for improvement according to the CFA-VantageScore Solutions survey. Myth: Low credit scores don’t greatly affect how much you pay over the life of the loan. Fact: Low scores can be costly. Only 29 percent of survey respondents were aware that on a $20,000, 60-month auto loan, a borrower with a low credit score is likely to pay at least $5,000 more than a borrower with a high credit score. Myth: Age and marital status are factors used in calculating credit scores.

Fact: Over 50 percent of survey respondents incorrectly believed their age and marital status were factors used to calculate their credit scores. The only factors credit score models use are related to your use of credit, especially whether you make payments on time. Myth: Multiple inquiries when applying for a consumer or mortgage loan will have a negative effect on your score. Fact: If multiple inquiries occur during a one-to two-week window, generally they will not lower your credit scores. Only 9 percent of respondents were aware of this, and 34 percent incorrectly believed that each inquiry will lower your score. Understanding credit scoring can be complex, but it’s in your best interest to get the facts straight. With a clear view of what’s true and false, it’s easier to set the course for a sound financial future. For more information about the myths and facts of credit, visit www. creditscorequiz.org, www.vantagescore.com and www.consumerfed. org. These websites are free, do not display any advertising and do not collect any personal data. Both the online quiz and a corresponding brochure are also available in Spanish at www.creditscorequiz. org/Espanol. —(ARA)

Financial Advice

How to Create a Family Budget

For singles, creating a budget is relatively easy. They tend to have a good handle on how much money they have coming in, and when tracking expenses, they only have their own to think about. But creating a family budget is a whole new ball game.

Most families have multiple sources of income. And when there are multiple spenders, that makes things much more confusing. This is one of the main reasons that families lack a formal budget. But having a budget and sticking to it can greatly improve a family’s financial outlook.

Making a family budget may be tricky, but it can be done. Here’s how.

1. Take inventory of all income. If a certain source of income fluctuates from month to month, use the lowest amount or average it out.

2. Keep track of all expenses for a month or so. Keep all of your receipts, and ask all family members to turn theirs in to you each day.

3. Add up your monthly expenses. Be sure to include bills, debt payments, groceries, and everyday expenses such as lunch money and transportation costs.

4. Get the family together and discuss ways you can trim the budget. Getting input from other family members will help you determine which expenses are necessary and which ones could be cut down or eliminated. Maybe you or your spouse could start taking lunch to work instead of eating out, or maybe the kids can drop an extracurricular activity. 5. In addition to individual expenses, discuss how you can cut down on the electric bill, groceries and other necessary family expenses. Consider such things as carpooling or taking public transportation, buying more generic foods and adjusting the thermostat.

6. Estimate how much you can save on regular expenses, and cut the completely unnecessary items out of the budget. Then refigure it and see where you stand.

7. If you end up with a surplus, allocate a portion of it to savings. If you’re in the red, go back and rework the budget until you have more income than expenses.

Being Realistic

One reason that family budgets often fail is because they’re just not realistic. It’s great to cut down on expenses, but sometimes we tend to go too far. For example, cutting entertainment out of the budget completely might look good on paper, but we all need a little diversion every now and then. Instead of cutting such things out of the budget completely, consider finding ways to lower the cost. Going back to the entertainment example, maybe you’ve been going to dinner and a movie as a family twice a month. But eating in and renting a new release would be much cheaper, and you would still get to spend quality time together.

Individual expenses can also be tricky. This can be resolved by allocating a certain amount for each family member to spend each week. If someone spends his entire amount before the week is up, reevaluate his expenses and adjust if necessary.

Creating a family budget can help keep spending under control, leaving more money to pay down debts and save for future goals. But in order to succeed, close monitoring is essential. Your efforts will be rewarded, however, with less financial stress and more money in the long run.