Graduating from college and fully stepping into your 20s usually signifies increased monetary responsibility. Here is a list of dos and don’ts that will help you avoid the pitfalls and potholes on the road to financial stability.
Establish a good credit score.
Begin establishing a good credit score as early as possible. Your credit score can affect your insurance rates, your likelihood of getting a job, as well as your ability to buy or rent a residence. The longer you regularly practice paying off credit over the years, the more opportunity your score will have to build and improve. Your payment history, the types of credit you carry, and the length of time you’ve had your accounts all influence your score. Late payments result in a negative mark on your credit score and could raise interest rates on your credit cards. This is why services like Manilla.com are incredibly useful, as they remind you to pay your bills on time.
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…But don’t depend entirely on credit.
While it’s important to build your credit score, don’t make the mistake of using credit cards to live beyond your means. Keep your balances low enough that you can pay them off regularly — otherwise, you will fall behind payments and acquire a bad credit score instead of building a good one. Additionally, maxing out or failing to pay your credit card bills results in late fees, heightened interest rates, and a frozen account until some or all of the amount due is paid.
Don’t put off saving for retirement.
Just because you may start off earning in the low end of the salary pool doesn’t mean it’s too early to start saving. Not only is it important to start forming the habit — the sooner you start putting money towards retirement, the more grateful you’ll be down the road. Look into your options: 401(k)s are typically provided by an employer, while IRA accounts are often opened independently by an individual. At the very least, regularly transfer part of your earnings — around 10 percent — into a savings account.
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Establish a budget.
It’s basic but crucial: Start budgeting and saving while you’re young, before other financial pressures and familial responsibilities set in. Committing yourself to a simple budget forms good financial habits early on and results in great monetary payoff. Make a list of all forms of income and necessary expenses, as well as allotting some cash for splurges (going out, shopping, travel, etc). The best way to get started is by taking a month to track what you’re spending, adjust your budget accordingly — and then stick to it.
Do not go into forbearance or default on your student loans.
A common saying is “defer, not default” — if you really don’t have the cash, it’s better to find ways to postpone or extend your student loan payments than to default. There is simply no way around it — you must pay back your loans, regardless of whether you failed to graduate or find a job post-graduation. If you default on your student loans, not only will you likely be sued for the entirety, but you will also be liable for any court costs or legal fees accumulated during the defaulting process. Your federal and state tax refunds may be intercepted, and the defaulted loans could affect your credit score for up to seven years afterward. This will in turn affect your eligibility for any future loans. Either way, you will eventually have to pay up.
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Don’t neglect filing your taxes.
Whatever you do, do not forget to file your taxes. Penalties and fees pile up extremely quickly and only worsen the longer you fail to pay. There is no avoiding paying these fees unless you can prove a legitimate excuse besides willful neglect, something that is purposefully made very difficult to do. You will inevitably be sucked into a pricey, painful, slow process — it may take anywhere between 6 months to a year for the IRS to catch up to you, but rest assured that you will be hearing from them.
Don’t go into travel debt.
If I had a penny for every time I’ve heard someone say, “Now is the time to travel,” perhaps I would actually be traveling instead of compiling this list. In reality, yes, you should try to travel while you are young and hold fewer responsibilities, but not at the cost of going into massive debt. Instead, plan your trips far in advance and incorporate travel savings into your regular budget. Carefully consider in which areas — hotel, activities, food — you’re willing scrimp or splurge and maintain that balance both while planning and traveling.
More from Manilla.com:
- Manilla’s Financial Literacy Toolkit
- Are You a Financial Disaster Waiting to Happen?
- 10 Steps to a Financially Organized Life
- Personal Finance - Career & Education
- Banking & Budgeting
- credit score
- credit cards