Ask Karen Gibbs

Veteran business correspondent Karen Gibbs answers your personal money questions and addresses current topics that affect YOUR finances on a daily basis. Karen is the financial expert in your corner--no question is too basic or too small. Karen boils down the issues simply: here's what you need to know, and here's what you need to do. Send your money questions to AskKaren@mpt.org and post your comments below.

25

June

Financial Wisdom for the Class of 2015

Karen Gibbs

Hi Karen, my nephew is now a college graduate.  What words of financial wisdom would you share with him?

- Sonya, Baltimore

 

Grad Cap and MoneyCongratulations to your nephew, Sonya.  I’m sure you are a proud aunt and have set a great financial example for him.

 

As is the case with most college students, your nephew probably has student loans that he must repay.  Fortunately, most student loans have a “grace period” of anywhere from 60 days to three years from graduation, before repayment must start. Use that grace period wisely, and plan on repaying that loan within 10 years.

 

Starting with the student loan payment, help him create a monthly budget of expenses.  Include the necessities of rent, food, transportation.  Add in utilities such as gas, electric, cable/Netflix and cell phone bills.  Factor in monthly health care premiums and a modest amount of spending money.  Compare his total estimated monthly expenses with his monthly take-home pay.  Ideally, he should be spending less that he makes.

 

Impress upon your nephew that he is his greatest asset.  His education, skills, training and experience combined are known as his “human capital” or value in the marketplace.  As his salary grows, so should the amount he pays himself.  He should pay himself first, at least 10% of his monthly paycheck, more if he can afford it, and put at least three month’s salary into an emergency fund.

 

While he’s working, there will be the temptation to buy things.  I would caution him to distinguish between what he really needs and what he wants.  While he may have his eye on that new Lexus, taking public transportation for a while may help him save up the down payment for a more practical vehicle.  If he must make significant purchases for a new apartment, consider spreading out the purchases, buying one major piece at a time instead of all at once.

 

Establish credit and use it wisely.  His credit history will be his financial reputation.  How he handles credit will affect every area of his life, from getting an apartment or a mortgage for a house to how much interest he will have to pay for the credit extended to him.  Pay off credit card balances in full, every month.  Carrying a balance is a sign he’s living beyond his means.

 

Use technology to his advantage.  Online bill pay or smart phone apps are easy to use, time-saving and money-saving tools that can make his financial life much easier.  We should all embrace them.

 

Lastly, urge your nephew to take advantage of everything his employer has to offer – from health and disability insurance to matching funds for employer sponsored savings plans.  Disability insurance offers your nephew some protection if, for some reason, he is unable to work.   Most bankruptcies are a result of medical bills and loss of income.  The employer sponsored savings plan offers a low-cost, painless way to accumulate savings, get free money from his employer and defer taxes until he decides to make withdrawals.

 

Following these suggestions will put your nephew on the path to financial security.  Good luck to you both!  

 

-Karen

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