Spring is in the air, which means it is college graduation season. This year, it is projected that nearly two million students will graduate with a bachelors degree. And many of them are going to be entering the job market and starting their careers. The Oregon Society of CPAs offers the following financial guidance to help recent college graduates build a strong financial foundation.
Look past the salary when reviewing job offers
It may be tempting to select a job based solely upon the salary. However, per the Bureau of Labor Statistics, benefits actually average 31.4 percent of a total compensation package. That means that it’s important to have a detailed understanding on what a prospective employer offers in terms of health insurance, sick and vacation time, 401(k) or other retirement savings match and any additional benefits. It’s possible that a job offering a higher salary and less competitive benefits may provide less total compensation than an offer with a lower salary, but more robust benefits. So, don’t be afraid to ask for specific and detailed information about benefits when weighing a job offer.
You should also consider your career growth prospects when comparing jobs. An employer with a promising future and a track record of encouraging staff development can provide superior opportunities to increase your personal value and move up as you build experience.
What’s more, once you begin you job make sure you’re taking advantage of all of the perks being offered and understand the options available to you. It’s important to stay on top of any changes to your benefits – your HR department likely offers an annual open enrollment period when you can make changes to your benefits, such as the health insurance you’ve selected, and add or decline additional benefits, such as dental or vision insurance. Taking an hour or two to understand your options and choose the plan that is right for you can save a lot of money.
Come up with a plan for student loan debt
For recent college graduates who earned a bachelor’s degree, the average student loan debt is $28,500. Once recent graduates get their first paycheck, they should develop a monthly budget that factors in their loan payments. You should also determine how much money you can save over time if you are more aggressive and put more than the minimum payment towards your loan balance. If you’re able to pay extra, check with your student loan provider to make sure that your payments are being applied to the loan principal – which means your overall balance will be reduced. Otherwise, your loan provider may just apply them to future payments and push your next due date back.
The most important things are coming up with a plan that you are confident you’re able to stick to and making sure you don’t miss any payments. To help develop a repayment plan that works for you, the 360 Degrees of Financial Literacy program has a loan calculator that will help you understand your options for getting out of debt.
It’s never too early to start saving
For many young adults, their first job after college is the most money they’ve ever earned. It can be tempting to fall into the habit of spending the entirety of your paycheck. However, by instilling the discipline of savings as soon as you start earning a paycheck, you’ll be setting yourself up for success. Recent graduates should aim to participate in their employers 401(k) plan, if one is offered. A good goal is to contribute enough to receive the full employer match, if one is offered. This money should be viewed as retirement savings only – because that is what it is intended for. Early withdrawals usually come with penalties and taxes and should be avoided if at all possible.
As a parallel savings goal, recent graduates should begin building up an emergency fund. The best way to do this is to make regular contributions to a savings account with a rule that they can only be used in certain situations. Medical bills, mandatory car or home repairs or covering rent in the event of job loss are some examples of what the money might be earmarked for. Experts recommend having 3-6 months living expenses on hand in an emergency fund. And one additional benefit is that having these funds available in the event of an emergency means you won’t need to tap into your retirement savings or run up credit card debt with high interest charges.
Your CPA can help!
Establishing a financial plan is the best way to ensure your hard work is helping you get closer to your life goals. Speaking with a CPA is a great first step for developing a budget, paying off your loans and getting started on retirement savings. You can find one in your state using this free resource.
Money Management is a regular column on personal finance prepared and distributed by certified public accountants, produced in cooperation with the Oregon Society of CPAs (www.orcpa.org) and the American Institute of CPAs (www.aicpa.org). Copyright 2019 The American Institute of Certified Public Accountants.