Some 1.8 million students will graduate with a bachelor's level degree in the U.S. in 2017.
And most, if not all, will have to start – as millennials are fond of saying – adulting. They will have to earn money, and pay back student loans, and pay bills, and save for a rainy day, a car, a home and retirement.
Keep track of your expected and actual income and expenses using software programs such as Mint or You Need a Budget. Of note, making a making a budget is not a once-and-done task. Instead, you adjust as needed. "This is ongoing, and is not a test you study for to pass and then forget," says Autumn Campbell, a financial planning resident at Upperline Financial Planning. "Budgets are malleable and change as your life circumstances change. Having a budget keeps you honest with yourself and in-tune with your expenses."
A budget can also help you live within your means, says Jason McGarraugh, a certified financial planner with Neal Financial Group. "You need to know what you make and track what you spend," he says.
Save some of your income for an emergency fund (three to six months of living expenses is a good target). "This will help you weather a car breakdown, an impromptu spring break trip, or needing to fly home to see a loved one," says Campbell. "This way you will be expecting the unexpected, financially, at least, and will be far less likely to pay interest on unplanned expenses."
Of note, Ally Bank pays 1 percent on balances in savings accounts, which, Campbell says, "is as good as it gets for completely liquid assets these days."
Try to save at least 10 percent of your income in retirement account, a traditional or Roth 401(k), a traditional or Roth IRA, or similar account. At a minimum, save enough to get your employer's full match on your 401(k) plan. "A 100 percent return on money is unlikely to happen anywhere in your life," says Campbell.
Campbell also says opening a Roth IRA is a "great choice for most earners at 25 years old." She recommends investing in low-cost index funds such as the Vanguard Total Stock Market index fund (VTSMX) and the Vanguard Total Bond Market index fund (VBMFX). "Those two funds will expose you to the whole U.S. market and allow you to take part in the benefits of investing," says Campbell. Other options: target-date or target-risk funds.
Also, take advantage of your employee benefits if you have them, says McGarraugh. "If you do not want to read the employee handbook, hire someone, such as a certified financial planner to do it for you."
Graduates who borrowed money to pay for college will have to evaluate how best to pay back their federal and/or private loans. If you haven't done so already, visit the Education Department's website, https://studentaid.ed.gov/sa/repay-loans, to determine the right repayment plan, how to make payments, and what you can do if you can't afford your payments.
You might not think you have enough income or assets, but now's a good time to meet with a financial planner. A planner, among other things, can help you decide whether to consolidate your student loans, whether to save for retirement using a Roth 401(k) or traditional 401(k), how to invest your money, how much life insurance to buy, and the like.
"Ideally, if you want an A+ in financial literacy from the start," says Campbell. "I recommend that graduates find a way to get or hire a mentor who is a fiduciary to teach them about budgeting, retirement planning, risk management/insurance, and other aspects of financial literacy," says Campbell.
Note to parents and grandparents: A great graduation gift would be a one or two-hour consultation with a qualified and competent financial planner. You can search for a financial planner at www.letsmakeaplan.org, findanadvisor.napfa.org, and www.xyplanningnetwork.com/.
"You don't have to choose between living life today and preparing for life tomorrow, says Michael Branham, a certified financial planner with The Planning Center. "In reality, you should pay attention to both."
The key, he says, is to find a balance between your current consumption decisions and investing towards your long-term financial security. "Your monthly or annual cash flow is king, and developing both short-term and long-term strategies within that balance will develop money habits that can lead to long-term success in life," Branham says.
"We all like to have fun, and we've all made mistakes in our youth," says Branham. "But today's graduates often have their lives captured through social media and other online forums."
His advice: Pay attention to how you portray yourself to the world because someone is always watching, and the consequences of online mistakes could impact your ability to earn a living in the future.
According to Branham, life transitions come in different forms and circumstances; some will be good, others will be a challenge. "Be able to roll with the punches, and have a place – family, friends, advisers – where you can go to get advice on how to navigate your possible decisions when life happens," he says.
According to McGarraugh, five minutes early is on time; on time is late; and late is unacceptable. "If you live by this standard in your personal and professional life opportunities for financial independence will surface," he says.
The answer depends on your individual circumstances.
- If you currently have federal student loans that are with different loan servicers, consolidation can greatly simplify loan repayment by giving you a single loan with just one monthly bill.
- Consolidation can lower your monthly payment by giving you a longer period of time (up to 30 years) to repay your loans.
- If you consolidate loans other than Direct Loans, it may give you access to additional income-driven repayment plan options and Public Service Loan Forgiveness. (Direct Loans are from the William D. Ford Federal Direct Loan Program.)
- You'll be able to switch any variable-rate loans you have to a fixed interest rate.
- Because consolidation usually increases the period of time you to have to repay your loans, you might make more payments and pay more in interest than would be the case if you don't consolidate.
- Consolidation may also cause you to lose certain borrower benefits—such as interest rate discounts, principal rebates, or some loan cancellation benefits—that are associated with your current loans.
- If you're paying your current loans under an income-driven repayment plan, or if you've made qualifying payments toward Public Service Loan Forgiveness, consolidating your current loans will cause you to lose credit for any payments made toward income-driven repayment plan forgiveness or Public Service Loan Forgiveness.
Robert Powell is editor of Retirement Weekly, contributes regularly to USA TODAY, The Wall Street Journal, TheStreet and MarketWatch. Got questions about money? Email Bob at firstname.lastname@example.org.