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5 Important Tips For The Recently Graduated

woman holding a credit cardCongratulations! You’ve done it. You toughed your way through those four or five years of early morning classes, brain-numbing seminars and midnight study sessions and you’ve graduated. You have your diploma firmly in hand and are all set to move on to the next stage of your life. You may be looking forward to getting a new car, starting a job or even getting married. You’re about to be on your own, maybe for the first time in your life and you suddenly realize your personal finances are all up to you. You’ll definitely have financial challenges ahead of you and need to start thinking about your financial goals for the next 10 to 20 years.

Have you really sat down and thought about your finances and what you need to do in the next few months? If not, here are five simple steps you should be taking to get off on the right foot.

1. Make a budget

To be a good money manager you need to know where your money’s going and how to allocate it in the future. Having a budget is really the only way to control your spending and to make sure you spend less than you earn.

The first step in creating a budget is to determine your monthly expenses and income. Your income will be what you earn, plus any other forms of income such as interest earned, bonuses, commissions or Christmas money gifts from your parents or other relatives.

Next, you will need to calculate your spending. Since you recently graduated, you won’t have much of a history at this point so some of this may have to be pure guesswork. The important thing is to divide your spending into two categories – fixed and discretionary. Here are some typical fixed categories.

  • Rent or mortgage payment
  • Utilities
  • Transportation
  • Debt repayment
  • Family obligations

Your discretionary categories would include:

  • Food
  • Clothing
  • Health and medical
  • Entertainment/recreation
  • Pets
  • Investments and savings
  • Miscellaneous

You will next need to attach numbers to each of these categories. Since you don’t have much of a spending history at this point some of your numbers may have to be “guesstimates.” But that’s okay as you will learn more about your actual spending in the months ahead and can then adjust your numbers accordingly.

Once you’ve totaled up your spending you need to compare it with your income. If you find your spending adds up to more than your income you’ll need to make some adjustments. Since you can’t do much about your fixed expenses you will have to take a hard look at those discretionary categories to see where you could make cuts.

The important and hardest thing about budgeting is sticking to it. Here are some things you could do to make sure you stay on track.

  • Make budgeting an integral part of your daily life
  • Build in money for the occasional “splurge” or reward such as a night out with the boys or girls.
  • Monitor your spending regularly and make changes or adjustments as necessary

2. Make it a priority to save money

You need to be setting aside money whether it’s to create an emergency fund or put in an employer-sponsored savings plan. Because you’re young you have a powerful advantage over older generations, which is time. If you make saving money a priority now, your money will have years and years to grow and you’ll profit from compounding interest. Most people find that the easiest way to save money is to have it automatically taken out of their paychecks and deposited into a savings or investment account. This tends to reduce the “pain” of saving money because you should quickly learn to live on the “net” of your paycheck. Also, if you start saving money when you’re young it will become a habit that will stand you in good stead for all your life.

3.  Get a handle on your debt

If you’re typical, you graduated not with just a diploma but with a bunch of student debt. The average amount owed by this year’s college graduates is $29,400. While it’s likely that you don’t owe this much the odds are that you graduated owing on some student loans. If you know how much you owe and to who, good for you. If not, you should go to the National Student Loan Data System (NSLDS). It will have a record of all your federal student loans including, the amount borrowed, the loan provider or servicer, the date the money was distributed and how much you owe. The NSLDS even has a thing called a Loan Portfolio where you could store all the information about your loans. Once you have this information is in hand, you will need to make a plan for repaying your loans.

However, if you had private loans (from a bank or some other for-profit organization), they will not be in the NSLDS and you will have to chase down this information yourself.

Video thumbnail for youtube video Revealed – The 4 Greatest Myths Of Credit Scoring4. Learn why it’s important to have good credit

There is a simple fact about personal finances. It’s that the higher your credit score, the less it will cost you to borrow money. You can learn your credit rating by going to a site such as www.myfico.com, www.creditkarma.com or www.creditsesame.com. Your credit score is expressed as a three-digit number and the higher the number the better. Lenders usually make decisions about credit based on tiers as follows:

  • Between 700 and 850 – Very good or excellent credit score
  • Between 680 and 699 – Good credit score
  • Between 620 and 679 – Average or OK score
  • Between 580 and 619 – Low credit score
  • Between 500 and 579 – Poor credit score
  • Between 300 and 499 – Bad credit score

If you don’t believe your credit score makes a difference, here are the different interest rates you’d be charged on a mortgage – based on credit score.

760 to 850  5.780%           620-659   7.096%
700-759       6.002%          580-619    8.583%
660-699      6.286%           500-579    9.494%

As you can see from this table if you have a credit score in the low 600s you will pay a lot more in interest than if your score was in the high 700s.

You should also review your credit reports from the three credit reporting bureaus — Experian, Equifax and TransUnion. You can get your reports one at a time from the companies or all together at www.annualcreditreport.com. The reason why you want to get your reports is to review them as they could have errors that are damaging your credit score.

To keep your credit “good” you will need to keep tack of your loan balances and payment dates and develop a plan for paying off your debts. It’s also a good idea to pay off high interest debt first as this would save you the most money.

5. Protect yourself with insurance

Depending on your age you may still be on your parents’ health insurance. If not, you need to sign up for health insurance. Under the Affordable Care Act (often called Obamacare) everyone must have health insurance. If you don’t, you face the very real possibility of having to pay a penalty. If you don’t have health insurance through your parents or employer you will need to purchase a health plan from either a federal or state-based health insurance Exchange Marketplace.

There are some other types of insurance you also need. If you’re a renter, you should get renter’s insurance to protect against the loss of or damage to your personal property. And, of course, you need auto insurance. Your agent should be able to help you choose your coverage but the important part is to make sure you buy good liability insurance to protect you in the event you were to cause an accident where someone is seriously injured.

4 Bad Habits That Could Be Costing You Hundreds Of Dollars A Month

stack of cashEveryone has habits. Some of them are good, some not so much. For instance, the habit of walking 30 minutes a day would be a good one. So, too, would be the habit of good money management. That’s a wonderful habit. On the other hand, overspending is a terrible habit – so bad that most people won’t even talk about it. Beyond this, there are four other bad habits that could be easily costing you several hundred dollars a month.

Fast food

Are you and your family in the habit of eating fast food several times a week? You know this is bad for your body. It not only does bad things to your waistline but also to your wallet. Suppose, for example, that your family of four is eating at fast food spots two times a week and that each visit costs between $27 to $30 – or an average of $57 per week. That’s $228 a month you could save by creating a new habit of not eating out. Instead, you could prepare some meals in advance for those busy nights. Then instead of paying $60 twice a week to enjoy the convenience of fast food, you would cut this to maybe $10 a meal – and the food would be better for your family, too.

Girls’ or guys’ night out

If you’re a woman do you hook up with your gal pals a few times a month? Or if you’re a guy, are you meeting your buddies regularly for a couple of drinks? If so, you’re probably racking up a bar tab of anywhere from $40 to $60 per night out. What you could do instead is make a new habit of creating your own appetizers, buying your adult beverages and watching movies at one of your homes – instead of out howling at the moon. In 30 days this could save you $160 and you should still have a great time.

ATM and other bank fees

How many cash withdrawals do you make a week? If you make just two at non-network ATMs (those not owned by your bank) you’re probably paying a charge of $2.50 or even more every time. Do you have one of those types of checking accounts where you are charged a fee whenever your balance drops below some amount such as $5000? This could be an additional $7 a month. You may also be paying a maintenance fee for your savings account. You could drop this habit very quickly by going to a new bank that doesn’t have those kinds of fees. It’s likely that you can find one that doesn’t charge you when you use another bank’s ATMs and doesn’t tack on extra charges to your checking and savings accounts. This could save you as much as $66 a month.

Buying off your list

A fourth bad habit that can cost you money is buying off the list when you do your grocery shopping. Today’s supermarkets are great at offering impulse items at the door where you walk into the store or at the end of their aisles. If you are in the habit of falling victim to impulse purchases, you need to create a new one, which is to make a list of what you need and then never deviate from it. This is something we actually need to work on. We often go to the store for bread or fresh produce and then leave with a cart full of stuff we had never intended to buy. If you can learn to say “no” to those tempting items or add-ons, you could save as much as $200 a month. If you’d like more tips on how you could save money on your groceries, here’s how one woman does it – as well as why to buy in bulk at discount warehouses like Sam’s Club.

Lending money to family members

Are you in the habit of lending money to family members? Economic times are tough and many Americans are turning to family members and friends for loans instead of going to the big banks for money. If you expect the money to be repaid, the key is to treat any loan to a family member or friend as a business loan and keep the emotions out of it. If you treat a loan to friends or family members as a business transaction, you can keep yourself from damaging an important relationship due to money. You might feel inclined to help out one of your loved ones with money but it’s important to communicate openly about your expectations of repayment so that no one is left in the dark. Here are a few steps you could take if you want to provide financial support to a friend or family member.

1. Don’t expect to be repaid. If you’re going to loan money to a family member, assume you’ll never see it again. That’s not to say you won’t. It’s a matter of expectations. If you don’t expect repayment and the loan isn’t repaid, you won’t be angry or disappointed.
2. Expect repayment to be slow. The number one reason why people get loans from family members and friends is because they can’t get a loan somewhere else. Unfortunately, when friends and family members borrow money they don’t view the loan as seriously as if they had gotten the money from a bank. What this translates into is that they may feel more casual about paying you back.-
3. Do a checklist. If you plan on lending cash to a friend or family member, put together a checklist of questions to answer before you make the loan. This can include “has the person asked you for money before?.” “If so, was it paid back?” “Were you paid back in a timely manner” and “how likely is it that you will be paid back this time?” And be sure to ask the person who is requesting the loan how he or she plans on paying back the money. This is critical because most people will have good intentions but their income is already tied up in paying their other obligations so how do they intend to pay you?
4. Write out a contract. Last but not least, write out a contract holding the both of you accountable. This can eliminate many of the problems linked to loaning money to friends or family members. Make sure that the contract includes the question of payments, especially what will happen if the loan goes unpaid.

woman thinkingHow long does it take to make a new habit?

The problem with trying to make a new habit is that it isn’t easy. Conventional wisdom says that it takes the average person between 21 to 28 days to build a new habit. But this may be an urban legend as there is research showing it could take as long as 66 days. This means that if you were to make a resolution about not eating fast food it could be nearly nine weeks before that new habit becomes fully ingrained. And this assumes you don’t get distracted at some point and forget it. Fortunately, there are experts who say it’s possible to build habits faster. In one project called “tiny tasks,” people executed three tiny little tasks each day for five days. The idea behind this was that it taught them the process of creating habits. Once they knew how to create a habit, they could then leverage the little habits into larger positive changes in behavior. As an example of how this works, if your goal were to do 10 push-ups a day you could start by doing just one each day for five days. This would help you create the habit of doing push-ups and you might then be able to move on from one a day to the 10, which was your goal.

“I need To Improve My Finances. What Can I Do?”

See how debt counseling can help youOkay, you made a New Year’s resolution to improve your finances but are having a hard time finding ways to do this. If this is the case, here are seven tips that could help you improve your finances this year.

Be a discount shopper year around

If you’re typical, you probably spent a lot of time looking for money-saving coupons around holidays such as July 4, Black Friday and Labor Day. However, retailers are now holding sales all year round and sometimes at unexpected times. For example, in 2012 Christmas sales started in October and continued throughout the season. You should be looking out for the best deals year around.

Make better choices with your 401(k)

Common mistakes made by many people are failing to update their investments on a regular basis or even check on them. Another mistake that is often made is to choose portfolios that are too conservative or on the other hand too risky. Your company’s human resources department probably offers free services that could help you make better choices. For example, Fidelity has free seminars and information available to its clients.

Save 1/4th of your income

The returns on investments today are just not what they once were. In fact, if you’re lucky you might be able to get an average return of 4% on your investments in the years ahead. This means you will need to contribute more to your retirement accounts if you want to have a comfortable retirement. Many financial experts say that you should be saving as much as one-fourth of your income in both after-tax and retirement accounts. Plus, you can’t really rely on Social Security benefits any more as it’s hard to tell what will happen to them in the years ahead.

Consider changing to a credit union

If you feel your bank is charging you a lot of fees that just keep getting higher, you might want to switch to a credit union. You should be able to get a better interest rate on your savings accounts than your bank, along with lower rates and fees on mortgages and auto loans.

Earn money on the side

If you’re typical, you may not feeling very secure about your job these days. This has driven many Americans to pick up another source of income on the side. If this interest you, the website Payscale.com says the highest paying second jobs are in law, senior copywriting, clinical psychology and information technology security.

Do a better job of managing your time

If you’re trying to manage two jobs, it’s easy to start feeling overwhelmed. You can combat this by learning to wake up early, stay organized, and avoid things that waste your time such as television. Many people who are juggling jobs say they work on weekends or even take a leave from their regular jobs so they can focus on their other one exclusively at least for a few months.

Prepare to face life after 40

Did you know that in most professions, your income will stop rising about the time you reach age 40. The website Payscale.com has found that in many jobs your earnings will rise fast in your 20s and 30s as you become more valuable. However, around the middle of your career you may plateau and salary increases will slow down for you. You can prepare for this by ramping up some side income. This could help make up for what you might lose in terms of your full-time job.

Should You Pay Off Debt or Save Money?

Attractive woman holding small goldern scalesHave you been blessed with some “extra” money such as a year-end bonus, freelance earnings or an unexpected gift? If so, you may be wondering what to do with it. Obviously, you could save it, splurge or pay off debt. One of the most common debates is the savings-versus-debt debate. But if you answer the following questions, you should be able to decide which one would make the most sense for you.

Do you have an emergency fund?

First, do you have an emergency savings fund? Even if you have credit card debt with high interest rates to pay off, you need to have a savings account to handle emergencies. An emergency can occur at any time. You might find you need to get your car’s transmission replaced, a root canal or a dishwasher repair. Credit is tough these days so you can’t just count on getting a new credit card or other types of loans to bail you out. You need to have your own cash stash for those types of emergencies. In fact, you need have at the at the minimum three months’ worth of expenses put away.

How much is your debt costing you?

You need to also determine how much your debt is costing you. This is a very simple calculation that many people don’t make but can show you just how costly debt is. The way you determine the cost of your debt is to list of all your loans, including your mortgage, auto loan. credit card debts and any other form of debt. Next to each loan amount write down the interest rate you’re paying. Then multiply the two numbers. This is how much you’re spending on each loan per year. For example, a $12,000 car loan at 6% costs about $720 a year. Remember that figure as we move to the next question.

How much might you earn?

Next, determine how much you would earn if you were to save this new found cash and where would you put it? Would you deposit it in a bank account that’s earning, say 1%? Or would you put it in a money market fund that would earn more? In today’s economy, it’s tough to earn more than 1% or 2% without opting for a risky investment. Get a piece of paper and write down the amount of your “extra “cash and then multiply this number by the interest rate you think you would earn on that money.

Compare the two

Now, compare the cost of your debt versus how much your savings would earn. Consider whether paying off a piece of your debt could earn you more money than you would get if you were to save it. If paying off part of your debt would save you more then saving the money, it might be better to pay it off.

Think about your future earnings

Do you think you might get more of this “extra” money in the future? If you believe you might get another boost like this, you would have somewhat more flexibility because you would have more money to work with and might be able to both pay off debt and save money.

Your financial goals

Do you have plans that would require a lot of cash? Do you intend to start your own business, trek through the Himalayas or buy a home? In this case, it would probably be best to increase your savings so you would have more than only an emergency fund. However, paying off debt can also help because it allows you to begin your new adventures without having to carry the weight of old loans.

If your debt is out of control

Of course, if your debt has gotten out of control, all of this is somewhat academic. You need to tame that debt and this is where we can help. Our counselors can work with your creditors to get your debts reduced – probably by thousands of dollars – and help you get out of debt within a reasonable amount of time. Call our toll free number to learn more about debt settlement and how it can help you. It’s an easy call to make and could make a huge difference in your life.

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