By SJS Managing Director Jennifer Smiljanich
It’s that most wonderful time of year! School buses are back on the roads, those long, hot summer days are getting cooler and shorter, and autumn is right around the corner. Some of you are experiencing the happy, and maybe bittersweet, occasion of a son or daughter (or grandson or granddaughter) who has recently graduated from college and is now leaving the nest.
Maybe your new college grad is moving across the country, and you’re worried about him supporting himself while paying big-city rent. Or maybe your child is worried about what it means to really be “on her own,” and what to do if she runs short on cash.
We know you’ve worked to provide a good foundation to help your son or daughter get started on the right foot. Building good financial habits takes both time and discipline. But sometimes it takes a mistake – or two – along the way to learn the lesson. To avoid some of the most painful lessons, here are five tips for helping your 20-somethings get on solid ground:
Set a budget, and stay within it.
One of the most important life lessons is living within your means. For someone living on their own for the first time, handling all of the bills may be new. Budgeting tools can help your graduate plan on how they can cover the rent on the “have to have” apartment, while paying the loan on their car, utilities, groceries, and other basic needs.[1]
Count on there being an emergency! Be prepared.
An emergency fund goes a long way to easing the stress of the unexpected. Keeping extra funds set aside in a checking or savings account, up to three to six months of living expenses, is a good plan.[2]
Keep score, and be diligent about debt.
Building good credit at a young age is important, especially as entry-level incomes may be low.[3] Be sure to pay off credit card balances each month, pay rent on time, and keep up on any student loan debt payments. Then, when they are ready to buy a house in the future, they won’t need you as a co-signer!
The future is now – start saving.
After setting aside emergency funds and covering ongoing debt and expenses, encourage your adult children to save as much as they can. Even just saving enough to maximize their employer retirement plan match is a good start. As their salaries grow, or if they earn a bonus, they can think about increasing contributions. If your grad doesn’t have access to a retirement plan, he or she can contribute to an IRA.[4] And if you would like to help with their savings, you might consider gifting them funds they could use for IRA contributions – as long as they have adequate earned income.
Don’t forget the insurance.
Health insurance. Renter’s insurance. Disability insurance. These important coverages can help protect your children and their livelihood, as well as their personal belongings.[5]
And of course, the team at SJS is here to help. We know that money doesn’t come with an instruction manual, and financial decisions can sometimes be complicated. We are happy to offer our suggestions, or just lend an ear to listen.
Sources:
[1] “7 Simple and Free Budgeting Tools,” money.usnews.com. January 14, 2015.
[2] “Emergency Fund: Why It Matters,” nerdwallet.com. August 8, 2018.
[3] “How to Build Credit,” www.experian.com. 2018.
[4] “2018 IRA Limits on Contributions and Income,” thebalance.com. July 13, 2018.
[5] “A New Grad’s Guide to Insurance,” bankrate.com. July 7, 2018.
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