You’ve made it, high school grad! The real world awaits. And so does the need to get yourself on a sound financial footing. Here are some financial tips that you’ll need to navigate the ups and downs of your relationship with money.
Open financial accounts
“You may want to apply for a credit card. This will allow you to establish credit history that will be necessary down the line when trying to rent an apartment or buy a car,” says Anthony LaBrake, a certified financial planner and client adviser with Adam Financial Associates Inc. in Boca Raton, Florida.
If you don’t have a job, you may not qualify for a credit card on your own. Some alternatives — which will allow you to demonstrate your creditworthiness — are to get a secured card, or to have your parents co-sign for a card or add you as an authorized user on one of their existing cards. For more details on how that works, check out this post.
Get familiar with your credit card bills
When applying for a credit card, look at the interest rate, annual fees and late fees — as well as the detailed terms of cash-back and reward points.
“Understand the billing cycle of credit cards,” says Becky House, Seattle-based education and communications director at American Financial Solutions. “At what point will you be charged interest on a purchase on the card? Avoid paying extra to borrow money from a credit card company.”
Explore some of the different types and terms available on this credit card search tool in our Solutions Center.
Build credit responsibly
Be careful with that first credit card: How you use it has a big impact on your credit. So, use your credit card responsibly. Make small purchases that you can pay in full.
“If you are using a credit card, try to use it for something that is already a part of your budget. Do you pay for Spotify? Netflix? Use the card to pay for those services, and then use your cash to pay off the cards in full, every month,” House says. “This builds good credit and avoids debt.”
For more on establishing good credit, check out: “6 Simple Tips for Newbies to Establish Stellar Credit.”
Set money goals
Set savings goals, LaBrake says. Then, make plans for that money.
Do you need to buy a car to get to work or college classes? Do you need to save for the deposit on an apartment so you can move out of Mom and Dad’s house? Or maybe your income can be set aside for a longer-term goal.
“A Roth IRA is a great idea for people at this age, and the compounding they can achieve by starting so young will go a long way in saving for retirement,” LaBrake says. “This money is taxed before you contribute it to the account and will grow, and can be withdrawn in retirement tax-free.”
To keep track of where your money is going, consider one of the many online budgeting tools. Our favorite is our partner site YouNeedaBudget.
Start a ‘curveball account’
Anna Sergunina, a San Francisco-based certified financial planner with MainStreet Financial Planning, urges high school grads to prepare for life’s emergencies by building an emergency fund — which she refers to as a “curveball account.”
“I promise you, if you can master this step early on in your life, you will never have to worry about situations where you have to borrow for emergencies or opportunities,” Sergunina says. “There is a huge power in having a stash of cash that you can tap into any time!”
Tuck away three to six months’ worth of living expenses, and life’s downs won’t get you down.
Get as much free money for college as you can
College is expensive, and scooping up free money will help to trim costs.
“Maximize money that does not have to be repaid,” House says. “Apply for financial aid. You may qualify for grants. Look into scholarships.”
The place to begin is with the FAFSA — Free Application for Federal Student Aid.
Stay close to home to lower college costs
Many young people dream of an idyllic college campus far away from home. But you may be able to trim costs significantly by attending a local college or university — or a community college.
“Attend a less expensive community college to knock out degree prerequisites,” House recommends. “Attend a college in state, rather than out of your home state.”
If college costs seem daunting to you and your parents, you are not alone. Check out: “12 Ways to Slash the High Cost of Earning a College Degree.”
All of these strategies will help to lower college costs and lower the amount you will need to borrow with student loans.
Be smart about student loan debt
Most people graduate college with student loans, LaBrake says. So, be smart about borrowing.
“Be wise while selecting a college and take into consideration the financial aid as well as how much people in your field of study tend to make,” he says. “For instance, if you’re going to school to study art, it may not be financially savvy to take out $240,000 in loans for a private institution.”
Do you have experience or wisdom to share with new high school graduates? Do so in comments below or on our Facebook page.