New college graduates are on the loose and building their new work wardrobes for their first job. Are you a proud father and grandfather? In addition to celebrating the holidays and gifts with them, now is the time to give them the gift of financial independence, too. As you start your first jobs, you might ask yourself, “Is my child ready for the financial responsibility that comes with a full-time job and living alone?” Right from the start, you want them to develop healthy spending habits and savings priorities. Here are some tips to help steer them in the right direction:
Explain the importance of saving
As young adults begin to receive a paycheck, they may be tempted to spend much more on “wants” than “needs.” You can help by reminding them of the difference between the two and sharing the importance of saving. Whether it’s saving for unexpected expenses and emergencies or eventually buying a car or house, encourage your young adult to set aside a fixed amount from each paycheck. You can also tell them to check with their employer and see if they can direct the savings portion of your paycheck directly to a savings account and have only the rest go to your spending checking account.
Emphasize Retirement Contributions
Recent graduates hardly think about retirement. They have just entered the workforce, why would they have to think about an event that will impact them 40 years or more from now? With rent, bills, and other responsibilities, your teen can choose not to contribute toward retirement right after school. We all know this is a mistake! This is your opportunity to emphasize how a long retirement time horizon can benefit you financially. Inform them about compounding growth in savings and encourage them to talk to their employer about any career guidance that is offered. Emphasize that they have one of the greatest assets working for them at this age: time.
Teach them to follow a budget
Budgeting allows young adults to create a spending plan with their money. It’s a great way to keep track of your spending and see if you have enough to spend on the things you really enjoy. Budgeting can keep your young adult focused on his money goals and avoid unnecessary financial problems. If they are feeling overwhelmed, share how you learned to live within your paycheck and show them that there are applications and tools online today that they can use; here are just a few examples.
Show them how to pay bills on time
As an independent adult, your child will need to take on many responsibilities quickly. Perhaps this includes paying a variety of bills regularly (rent, cell phone, etc.). Keeping track of when bills are due can be cumbersome for those just starting out. Show your child that it is crucial to be on top of bills and pay them on time. Late payments and fees, and any outstanding interest on balances, will drain your disposable income, leaving you less money to spend on entertainment and fun. There are many applications and computer programs to help you set up automatic payments and reminders. Help your teen see options and share the systems you use to manage monthly payments.
Help them build credit
Many college graduates have not yet had the opportunity to establish a credit history. Let them know how a credit score can affect your future. A good credit score can influence your ability to get approved for auto loans and mortgages. Your credit score can also affect the interest rates on these loans: A good credit score can lead to lower interest rates. Some employers use a credit check in their hiring process. Some insurance companies also use credit scores as part of their underwriting process, as a person’s credit can predict insurance claims. To help your young adult build his credit score, encourage him to pay bills on time, avoid taking on too much debt on open credit cards, limit the number of credit cards he uses, and keep his oldest credit card open.
Now that your graduation is officially launched, use some of your time together to pass on good financial habits. Whether it’s dedicating a portion of each paycheck to savings or using an app to track expenses, these tips can help your young adult stay on top of their finances and develop good money habits that can last a lifetime. life.