Financial Tip of the Week from the Iowa Bankers Association:
As college graduates receive their diplomas and prepare to enter the working world, they have a lot on their plate. In a tough job market, this year's college graduates have even more challenges ahead as they search to find a job, find an apartment and pay monthly bills. To get the Class of 2010 started on the right foot, here are five financial tips every college graduate should consider:
1. Create a spending plan. Creating your own spending plan – commonly known as a budget – is the best way to make sure you don't spend more than you earn. Track your expenses and compare the total to your income, then develop a realistic spending plan that works for you. Your spending plan will include fixed costs that are the same each month (rent, utilities, student loan payment as well as savings for retirement). The rest of your income is considered discretionary income, and you control how that money is spent. After a few months of tracking your spending, you may discover that you need to cut back on things like magazine subscriptions, fitness memberships, fast food, lottery tickets, dry cleaning, cable television, pizza delivery or dining out at restaurants.
2. Start saving now. You've probably heard your parents mention the phrase "pay yourself first." Now as you prepare to enter the workforce, paying yourself first is more important than ever. By having a portion of your paycheck automatically deducted to a retirement plan or savings account, you won't be tempted to spend that amount. Start by saving enough cash to create an emergency fund with enough cash to cover six to eight months of living expenses in case of the unexpected – a job loss, illness or major auto repairs. Once you've established an emergency fund, you'll want to take advantage of your employer's retirement savings plan – especially if your employer offers to match a portion of the dollars you contribute. This is free money that you won't want to pass up! Find out how much your employer match is and how much you need to contribute to get all of it.
3. Maintain a good credit history. Your credit history is important to obtaining future credit to buy a house, car or other major purchase. To maintain a positive credit history, be sure to pay all of your bills on time – this includes your student loans, credit cards, utilities, cell phone and other bills that you receive. Curious about your credit history? Federal law allows you to obtain free copies of your credit reports every 12 months by visiting the official website at www.annualcreditreport.com or by calling (877) 322-8228. Review you credit reports carefully, and if you find errors or notice any suspicious activity, be sure to contact the credit reporting agency immediately.
4. Don't be afraid to buy used. If you were savvy enough to buy used books in college, why not continue being thrifty as you start out in the working world? Check out thrift shops and consignment shops in search of quality furniture to furnish your apartment. You can also find quality used clothing items to help build your wardrobe. If you need to buy a car, consider buying a well-maintained used car instead of buying new. As time goes on, you can set short-term financial goals to buy new furniture, new clothes or even a new car. Then adjust your spending plan and stick to it until you reach your goal.
5. Take charge of your financial future. Now is the time to get organized and take charge of your finances. Review your employer benefits carefully and don't be afraid to ask your employer if you have questions. Make sure you're properly insured with auto, renter's and health insurance. You'll also need to start thinking about your taxes and if you are going to seek help from a professional. Your local banker is also a great resource when it comes to financial questions. Your local bank can help you set up a savings or checking account and may offer financial services like online banking and online bill pay to help make it easier for you to manage your money.
These financial tips are provided by the Iowa Bankers Association (IBA), representing banks and thrifts in the state. For more information, go to www.iowabankers.com.