Real World Tips for New Grads

Congratulations! You’ve made it through the rigors of academia and are now ready to venture out into the real world. Now, your primary focus is finding a new job to put your talents to work. Once you land that job, here are some financial tips to keep in mind as you launch into your new career:

Life After College

Pay yourself first

Your first job presents the perfect opportunity to get into the habit of paying yourself first. In other words, you should consider dedicating money toward your future retirement before spending it on other items. If the option is available, take advantage of an employer-sponsored retirement plan, especially if your company provides a matching contribution. It’s also important to start contributing to your plan early on; you will likely need to sock away as much as 15 percent of your income to fund your future retirement.1

As you start to build your retirement savings, you may also consider Roth deferrals, which are made with after-tax dollars. Any earnings on Roth deferrals will be tax-free, so long as your contributions remain in the plan for at least five years and you don’t take withdrawals before age 59 ½.

The earlier you start saving, the better your chances of reaching your retirement goal. Consider this hypothetical example: let’s say that you start saving $381 per month at age 25. If you continue this habit and invest those funds at a seven-percent rate of return, you can potentially save $1 million by age 65.2 Of course, the probability that you will save this amount depends on your unique financial situation. However, this example demonstrates the impact that starting early can have on your long-term retirement savings.

Beyond starting early, it’s also important to utilize a disciplined and well-diversified approach to investing your retirement savings. Diversification can reduce the impact of any one security’s performance on your portfolio, while staying disciplined — even through market cycles — will help you avoid making rash, emotional decisions that could ultimately harm your portfolio’s performance over the long term.

Track your spending and prioritize expenses

Make sure that you are living within your means and monitoring your spending.
Now that you are no longer on a college student’s budget, you may be tempted to splurge; however, it’s important to recognize that those small expenses can start to add up.
For instance, paying $3.50 for a latte every morning may not seem like a lot — but over 30 years, that cost can add up to $38,000!

Create a realistic budget to help you manage your savings and any debt payments, as well as your annual living expenses. Prioritize each expense within your budget and fund the most important items first. Also, don’t forget to build an emergency fund in case something unexpected happens. Typically, an emergency fund should cover three to six months’ worth of living expenses.

Taxes 101

Don’t forget about taxes. Now that you have your first real job, you will likely be filing on your own for the first time. Remember to keep receipts for things like charitable contributions and medical expenses, both of which can be used as itemized deductions. Interest on your student loans or a mortgage can also reduce your taxable income.

If you are renting, check to see if your state allows for renters’ credits. You may even qualify for the Retirement Savings Contributions Credit, or “Saver’s Credit”, which helps offset part of the first $2,000 contributed to individual retirement accounts (IRAs) and 401(k) plans.

Pay off your debt

Like most college graduates, you may have student loans that you will need to start paying off after graduation. Make sure you know what loans you have outstanding, as well as their respective payment schedules and interest rates. Many student loans have a grace period of anywhere from six to nine months, which can help you time your payments.

Additionally, remember to put the most expensive loans at the top of your priority list. Typically, private loans have higher interest rates and lack the flexible repayment options that come with federal loans, so it makes sense to start paying down that debt first.
To better manage your debt, you may consider consolidating some of your loans so you only have to keep track of one single payment and interest rate.

As I mentioned above, you may be able to deduct interest you pay on a qualified student loan. Generally, the amount you can deduct is the lesser of $2,500, or the amount of interest you actually paid, and is subject to a phase-out, which means the amount of the deduction gradually decreases and phases out completely if and when your modified adjusted gross income (MAGI) reaches the annual limit.

Check your credit report

Good credit can provide you with financial flexibility and security. As a new graduate, now is the perfect time to get off on the right foot and establish the foundation for a stable credit history. Paying off your student loans on time is a great start. You may also decide to apply for a credit card if you haven’t already done so, but be sure to practice due diligence in researching card details and rates (click here for a full list of tips to keep in mind). Request a free copy of your credit report at AnnualCreditReport.com; this contains important information about any credit you may have.

Make sure you’re covered

Health insurance is important, and as a new graduate, it’s your responsibility to know your options and ensure you have proper coverage. If your new employer does not offer health insurance coverage, you may be able to stay on your parents’ policy until you turn 26. If you forego coverage altogether, you may have to pay a fee, which is the higher of one percent of your yearly income, or $95 per person. If you find that you need to purchase your own coverage, determine how much you can afford to spend on a personal policy, including premiums and out-of-pocket costs for prescriptions and other services.

Your coverage needs may also include renters insurance and auto insurance for that new car you’ve been hoping to buy. Make sure you are working with a licensed agent and have a full understanding of the different types of policies and coverage options available. Don’t base your decisions on price alone; make sure you are getting the coverage that you need.

Starting off on the right financial foot after college can help you head down the path toward a successful financial future!

 

Hewins Financial Advisors, LLC d/b/a Wipfli Hewins Investment Advisors, LLC (“Hewins”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940. Hewins is a proud affiliate of Wipfli LLP. Information pertaining to Hewins’ advisory operations, services and fees is set forth in Hewins’ current Form ADV Part 2A brochure, copies of which are available upon request at no cost or at www.adviserinfo.sec.gov. The views expressed by the author are the author’s alone and do not necessarily represent the views of Hewins or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Hewins, and Hewins does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Hewins of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional.
Amy Libertoski
Amy Libertoski

CPA, PFS | Principal, Senior Financial Advisor

Amy Libertoski, CPA, PFS, is a Principal and Senior Financial Advisor with Wipfli Hewins Investment Advisors in Wausau, WI. Bringing 20 years of experience in the financial services industry, Amy specializes in financial, estate and retirement planning for families, as well as tax planning and preparation for high-net-worth investors.

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Real World Tips for New Grads

time to read: 5 min