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6 essential money skills for grads
What every new high school graduate should know BEFORE college
Legal Disclosure: Tony Robbins is the Chief of Investor Psychology at Creative Planning, Inc., an SEC Registered Investment Advisor (RIA) with wealth managers serving all 50 states. Mr. Robbins receives compensation for serving in this capacity based on increased business derived by Creative Planning from his services. Accordingly, Mr. Robbins has a financial incentive to refer investors to Creative Planning.
Congratulations, you’ve graduated high school! Independence is so close you can taste it. But, before you strike out on your own, there are a few things you should know about money that could make the difference between financial success and living with your parents until you’re 30.
Create a spending plan
First things first, you need to create a budget. No matter where you go or what you do in life, this is a basic skill you need to learn now. Think of your budget as a spending plan – it’s not meant to be a killjoy, it’s a map that will help guide you to your financial goals.
If you’ve never created a spending plan before, enlist the help of a financially responsible adult or find a basic free template online. If your parents are going to help you financially while you’re in school, sit down and do this with them.
Start by determining the income that will be available to you. Obviously this includes whatever you earn, but if you’re headed to college this may also include parental aid, scholarships and grants.
Next, assess your expenses: tuition, rent, food, transportation, health insurance, etc. This may be an eye-opener – you may want to see what scholarships are still available or work more than one job this summer. Subtract your expenses from your income. Save and invest the difference – more on that in a minute.
Be smart about college loans
If you’re like 68.4% of your high school graduate peers, you are going to be enrolled in college or university in the fall. And for 70% of Americans, you’ll take out at least one student loan to make it happen. However, before you rely heavily on loans consider that student debt in the United States surpassed $1.2 trillion as of this year and 40 million Americans have at least one outstanding loan, with an average balance of $29,000.
If at all possible, avoid costly loans that you’ll be paying back for the next 25 years of your life. If you do take out a loan, borrow the bare minimum you need to cover the cost you’re your tuition and books – less if you can help it. Bankrolling a comfortable lifestyle on loans now will keep you trapped in debt five times as long as you would enjoy the benefits.
Learn about loan repayment options now, before you take a loan. It may seem overwhelming, but you should know what your plan is to pay your loans off before you saddle yourself with the debt. Remember that if you opt for an extended payment plan, your payments will be lower, but the longer you continue to make payments, the more interest you’ll end up paying. If at all possible, start paying down your loans while you’re still in college. This will minimize the interest you end up paying, meaning you’ll be able to pay them off faster.
Build great credit
Now is the time to start building your credit history, because before long you’ll want to rent an apartment or buy a car, and the first thing that potential landlord or car salesmen will want to know is your credit score. You can find out what your credit score is for free once a month at either Experian, Equifax or Transunion.
An easy way to establish credit is to pay your own rent or utility bill. Pay all bills and loan payments in full and on time. Late payments will kill your credit score.
Be careful of credit cards
Avoid credit card debt at all costs; it will cripple your financial goals. At this point you should only use a credit card to build your credit, and only if you can handle them responsibly. Opt for a secured card with a low monthly credit limit, in which you put down nominal cash deposits as collateral. Make small purchases and pay on time and in full. Or else, just stick to cash and debit cards for now.
Start your savings
Save what you can, even if it’s just a few dollars a month. If you received graduation money, take 10% and spend it on whatever you want. And then save the rest for your impending college expenses. Life after college will become expensive fast, especially as your loan repayments start, and you’ll be glad you put money aside.
Finally, start investing for your future now. Retirement saving may seem like a luxury you cannot afford, but the power of compounding is on your side the earlier you start. If investment options leave your head spinning like that chemistry final you’d rather forget, start out with a simple Roth IRA.
Header image ©Andresr/shutterstock, Article images © Goodluz:shutterstock, Pete Spiro:shutterstock, qvist:shutterstock