Valdosta Daily Times

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May 12, 2013

Congratulations on Graduation: Let’s talk finances

VALDOSTA — With graduation right around the corner, the last thing graduating seniors want to do is more homework. But, with graduation comes more real-world responsibilities, so whether you’re graduating in a couple of weeks or you graduated a couple of years ago, you need to put some real thought and effort towards your finances.

“We feel that it’s imperative to educate high school students and youth in general about financial literacy,” said Lori Cauley, Southeastern Federal Credit Union vice president of marketing and business development. “For many of these young people, no one else is teaching them the skills they need to know to be financially independent adults.”

That’s why SFCU started a high school advisory board a few years ago. The board pulls together high school seniors for a nine-month program of financial information, covering budgeting and how to use credit cards, among other topics. Students who complete the program receive a $500 scholarship.

So if you’re already out of high school, what can you do?

“When you’re getting established on your own, the first thing you want in place is a cash reserve,” said Greg Bright, associate wealth adviser with Bush Wealth Management. “Typically, you want a reserve that can cover six months of your required expenses, but if you’re just starting out, work on getting $1,000 saved and don’t touch it. It’s not for pizza. Over time, you want to build up to the six-month reserve.”

Keep in mind that a six-month cash reserve isn’t just your rent and utilities for six months. It needs to be able to cover everything you spend money on: gas, car maintenance, food, eating out, entertainment.

“A good way to see what it should be is to look at what you spend in an entire year and divide it by 12,” said Bright.

Typically, six months is the base-line, but you want to raise it higher if your income fluctuates; for instance, if you’re self-employed, a freelancer, or if your income is commission-based.

You might end up using your emergency fund for unexpected medical bills, emergency home or car repairs, or moving funds for when you finally got that job you want, but it’s four states away.

After you use your emergency fund, make it a priority to build it back up, like refilling a fire extinguisher after a fire.

Of course, with every financial decision you’ll make in your life, you need to start with a plan. And while you’re figuring up what you spend in a month, it’s the perfect time to establish a monthly budget. Much like with your cash reserve, you need to be as thorough as possible in your budget. If you like to hit the bar a couple of times a month and catch a movie every other weekend, put it in the budget. If you regularly give money to a church, temple, mosque or charity, put it in the budget. If you ..., well, you get the point.

“You want to budget to make sure you don’t go overboard, to make sure your food, your rent, your textbooks and college expenses are covered.”

If you’re taking out loans, be sure to understand how they work. Student loans have the dubious distinction of being one of the only things that can’t be discharged through a bankruptcy filing; when you take out student loans, you are making a life-long commitment to them.

As with all finances, you need to start with a plan. Plan how much you’ll need each semester and each year. While you don’t want to underestimate, you don’t want to overestimate either. Every dollar you borrow is a dollar plus interest you’ll need to pay back.

Shoot for federal loans first and make your loan payments on time. And if it is at all possible, consider making extra payments to pay down the loan faster. There is almost no investment that will pay you back as well as paying off your loans early.

“Just like with anything else in your future, if you don’t sit down and come up with a plan, you’re less likely to do what you want to do.”

While it may seem far off now, Bright recommends that graduates start thinking about retirement now and, if they’re working at least part-time, open a Roth IRA account.

“A Roth IRA is very easy to open with very minimal costs. You can deposit up to $5,500 a year, provided your deposit is partially earned income. The money grows tax free, and then you can pull it out when you’re 59 and a half. Lots of 18-year-olds aren’t thinking about retirement, but it’s an excellent time, actually the best time. The longer you have for your money to grow, the more it’s going to grow.”

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