Congrats graduates! Money mom would like to share a recent article that ran in the San Francisco Chronicle
which provides some money management wisdom from consumer advocates around the country.
Know your score: Once you borrow money from a lender that reports to the nation's three major credit bureaus - Experian, Equifax and TransUnion - you will have a credit report. Home and student loans and most credit cards are reported to the bureaus. Utility, medical and other unpaid bills might be reported if they are turned over to a collection agency.
Your credit usage and payment history will be used to generate a credit score. The most widely used is the FICO score, developed by Fair Isaac Corp. Lenders will use your score and report to decide whether you will get a loan and at what interest rate. Many landlords will check them before renting to you. Prospective employers might check them before offering you a job, especially one involving money. Insurance companies might check them before selling you a policy.
Review your credit report periodically to make sure there are no mistakes. You can get a free copy of your report from each of the three credit bureaus once per year at www.annualcreditreport.com. After getting your report, you will be asked if you want to buy a score. I recommend buying one from Equifax for $7.95 because you'll get a genuine FICO score. The others give you a different variety.
The best way to boost your score is to pay down debt and always make payments on time. To learn more, go to www.myfico.com and click on "Understanding Your FICO Score."
Use debt sparingly: Never borrow more than you can repay. Start out with one credit card. If you're a bit of a spendthrift, choose a gasoline or department store card that can be used only at limited outlets. Or consider a secured card from a bank, which is paid for in advance. For convenience, use your debit card. Save your credit card for emergencies.
Live frugally: Don't expect to replicate the lifestyle of your parents, who have worked years to get where they are.
"Don't go to Starbucks twice a day. Bring your lunch to work a couple times a week," says Ken McEldowney, executive director of Consumer Action. Visit the library instead of the bookstore. Find a cheap hobby like hiking.
If you live in an area with good public transportation, "maybe you don't need a car," McEldowney says. Rent one when you need one. You'll save a fortune on payments, insurance, gas and repairs.
Repay debt: You must begin repaying federal student loans (such as Stafford and Perkins loans) six months after you stop going to school at least half time. To make sure you don't miss any bills or lose benefits - such as interest rate reductions for on-time payments - make sure your lender knows your address.
"Most people lose borrower benefits on the very first payment because they forget to submit an address change," says Mark Kantrowitz, publisher of Finaid.com. "If you run into problems repaying your debt, call your lender before you start having trouble as opposed to afterward," he says.
Federal student loans let students postpone payments if they can demonstrate economic hardship. However, if you default - meaning you are more than 270 days late with a payment - you lose these valuable options.
College loans are much harder to get discharged than other types of unsecured debt. Even if you file for bankruptcy, it will be almost impossible to get out of paying your college debt, including private student loans.
Always pay off your highest-cost debt first. If you also have credit card debt, make the minimum payment on your federal student loans, which are cheaper, and use whatever you have left to pay off your credit cards.
Start a rainy day fund: "Start saving immediately, even if the amounts are small, and do so automatically," says Stephen Brobeck, executive director of the Consumer Federation of America. Set up an automatic monthly transfer from your checking account to savings or a money market fund.
This fund is not to get rich but to pay for emergencies such as a major car repair. The alternative is to borrow money, which will cost more in the long run. Aim to have three to six months of living expenses in your rainy day fund.
Capture the match: Many companies let you contribute part of your salary to a 401(k) plan. Schools and nonprofits offer 403(b) plans, and government employers offer 457 plans. They all work basically the same.
In a traditional 401(k) plan, any money you put in won't be taxed until you take it out. If you take it out before age 59 1/2 , you generally owe an extra 10 percent penalty.
Some employers offer a matching contribution. For example, for every dollar you put in, they might put in 50 cents up to some limit, such as 6 percent of your pay. If you leave the company, you can keep whatever you put in, plus whatever it earned. But you usually have to stay for some period - typically three years - to keep the employer contribution.
If your employer offers a match and there's a chance you will stay through this vesting period, do whatever it takes - even if it means borrowing form your parents - to get the matching contribution. Passing it up is like leaving money on the sidewalk.
Think long term: If, after doing all the above, you still have money, contribute additional, unmatched dollars to your 401(k) plan or open an individual retirement account at a bank, mutual fund or brokerage firm.
If you start investing in your 20s, thanks to the miracle of compounding, you will have far more than if you wait until your 30s or especially your 40s, Brobeck says.
Don't lend money to friends: "It really can complicate your friendships, and you may lose your money," says Gail Hillebrand, a senior attorney with Consumers Union.
Be skeptical: Never believe anything a salesperson tells you without carefully reading the contract. Fine print rules.
Choose your first job wisely: Money and benefits - especially health care and a retirement plan - are important. But more important are job satisfaction and advancement opportunities.
"Whatever job you take, prepare to work hard at it," Hillebrand says. "And I always tell people: Get out of the office. Join an alumni association, a professional association, and sign up for committee work so people get to know you. That way if you get laid off, someone else knows about you."
To sum it up: Make money, Save money, and Keep your money.
Some simple advice from Money mom.