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Class of 2018: 8 Ways to Prep for Financial Adulthood
Whether you’re graduating from high school or college, a diploma and a job represent the beginning of your personal — and financial — adult life. It’s an exciting, sometimes overwhelming time.
When you have the inevitable “I have no idea what I’m doing” freakout, remember these tips:
Set clear financial priorities
You probably can’t save, invest and pay off debt all at once, so prioritize in this order:
- Save $500 for emergencies, because there will be emergencies
- If your employer offers a 401(k), contribute at least enough to get any “employer match” — it’s free money
- Pay down high-interest debt, like credit cards
Learn a simple budgeting strategy
Identify your after-tax income on your pay stub, then use the 50/30/20 rule as a budgeting guideline:
- Use 50% for necessities like rent, groceries, transportation, utilities and minimum loan payments
- Put 20% toward savings and debt repayment
- Spend 30% on nice-to-haves like restaurants, travel and entertainment
If 50% isn’t enough to cover living expenses, dip into your nice-to-haves bucket.
Learn how credit works and why it matters
Credit is adulthood’s currency. You need good credit to qualify for travel rewards credit cards, get the best rates on loans and insurance and eventually buy a house.
To have a good credit score, you generally must:
- Use credit by taking out loans and opening credit cards. You don’t need to carry a balance on them, though
- Consistently make payments on time
- Use less than about 30% of your available credit. If you have a card with a $3,000 limit, for example, charge no more than $1,000
Check your credit score to see where you stand. If you have bad credit or no credit, consider getting a secured credit card or credit-builder loan to boost it.
Do some money multitasking
In fact, credit-builder loans can help establish credit and save money at the same time.
You can get credit-builder loans through some credit unions, community banks or the online lender Self Lender. Borrow a small amount — say, $1,000 — and repay in installments over a year or two. The lender holds the cash until the loan is repaid. Then you’ll get the money, minus some interest.
Assuming you make full, on-time payments, you’ll get some positive credit history under your belt — and have cash on hand for that emergency fund or retirement account.
Leverage your youth to build wealth
Speaking of retirement, saving for it is one of the best uses of your cash now. Compound interest over decades is like magic: A small amount invested today will be worth more than a larger sum you invest 10 years from now.
For example, every $1,000 you invest at age 22 becomes nearly $20,000 at age 72, assuming a 6% rate of return, according to NerdWallet’s compound interest calculator. If you put off starting by a decade, you’d have to save almost double to have the same amount by age 72.
Start saving for retirement
We didn’t use age 72 by accident — that’s the age at which the class of 2018 can expect to retire, assuming they contribute 6% of their incomes to a 401(k) and have a 50% employer match, according to a 2018 NerdWallet analysis.
If your employer offers a 401(k) with a match, sign up and contribute at least enough to get the match. Increase your contributions annually or whenever you get a raise.
If you don’t have an employer-sponsored retirement account, open a Roth IRA through a credit union, brokerage, or robo-advisor and contribute up to $5,500 yearly. The account’s earnings will be tax-free.
Make a plan for your student loans
Student loan payments typically come due six months after you leave school, giving you time to get a job before payments begin. But interest accrues during this grace period — except on federal subsidized loans — so begin making minimum payments sooner if possible.
Once you have very good credit and a job with a steady income, consider refinancing your student loans to save money by lowering your interest rate.
If payments on your federal student loans are overwhelming, review your options carefully. Income-driven repayment and Public Service Loan Forgiveness may offer relief, but both require meticulous attention to detail and annual maintenance to pay off.
Research your job’s market value
Advocating for yourself can be a particularly challenging part of adulthood. As your career progresses, you’ll feel empowered to negotiate your salary if you back your ask with hard numbers.
Research the going rates for similar roles in your field, at your skill level. Then, reference your findings during the negotiation conversation. Even if the employer declines, they’ll likely respect your preparedness and confidence.
Refund Mania! Here are six smarter ways to spend your tax refund
The April 17th tax deadline has come and gone, which leads us to the much happier half of the season – TAX REFUNDS! If you were an early-bird filer, you probably already have your tax refund in hand, while the procrastinators will have to wait a little while longer. Either way, you’ll need to come up with a solid plan for that chunk of change.
The average 2017 tax refund in Georgia is expected to be $2,793, slightly lower than the national average of $2,895. Regardless, that’s a hefty sum, especially when you receive it in one big fat check. You may think of it as new-found money, but you need to remember that you worked hard in 2017 and your refund is not just some random windfall. Will you spend it, save it, or invest it?
What’s the plan?
Consider your current financial situation and your priorities. What decisions can you make now that might positively impact your financial future? Here are six smart moves to think about.
1. Transfer it. One of the best recommendations we can offer is to immediately move your refund from your checking account to your savings account. This seemingly insignificant move could be the smartest step in the entire process. Why? Because it’s easy to spend $20 here and $50 there, and when it’s all whittled away, you’ll have nothing of real value to show for it. What to do next is up to you.
2. Catch up on your savings. B-O-R-I-N-G, we know, but excitement isn’t always the goal. Do you have an emergency fund that needs a little boost? Have you fallen a little behind on your child’s college fund? Need to replenish your personal savings? Paying bills and saving for the future is essentially a requirement when you’re adulting. Plus, having some cash stashed away for an unexpected expense would give you some financial peace of mind, and that’s incredibly valuable in today’s economy.
3. Invest in your future. With the help of a financial advisor, find an investment that will help you earn more money in the long-term. Consider an IRA, a 529 plan, or even a traditional brokerage account. Whichever option you choose, be sure to discuss your risk tolerance, time horizon, and ultimate goals before making a decision.
4. Pay off your high-interest debt. Revolving debt is one of the heaviest financial burdens you can carry. As interest compounds monthly and you rack up new charges, your existing balance climbs fast. Now is the time to knock down some debt and regain control over your finances.
5. Spend it on your home. After all, it is one of the biggest investments you’ll make in your lifetime. Shouldn’t you take care of it? Consider some maintenance or improvements that will increase your home’s value, or double up on your mortgage payments so you can pay it off sooner and reduce your accumulating interest.
6. Have a little fun. You need to make a smart decision and use your refund wisely, but that doesn’t mean you can’t enjoy yourself, too. Go out to dinner, take in a Braves game, opt for some wireless earbuds or a trendy new pair of kicks. Just make sure it’s not too extra.
What to do if you’re a victim of Identity Theft
Every day, thousands of honest, hard-working people unknowingly have their personal information stolen by identity thieves. Information including your full name, social security number, credit card or bank account number, and medical insurance account number can be fraudulently used by a thief to assume your identity for their own financial gain.
With your personal information in hand, a thief can use it to apply for credit, steal your tax return, open a phone, gas or electric account, rent an apartment, and even receive medical care. Any one of these acts can substantially damage your credit when bills go unpaid because (1) they aren’t your charges and (2) you’re unaware of the activity. It’ll also cost you a considerable amount of time and energy to restore your good name and credit standing.
Best ways to prevent identity theft
While we all may be at risk for identity theft, there are some steps you can take to protect yourself and your personal information:
- Keep your social security number secure; don’t carry your card with you and only provide the number when absolutely necessary.
- Be selective when providing personal information by phone, mail or online and never respond to unsolicited requests.
- Keep passwords private and protect them from view when typing on a computer or ATM. Make sure they’re complex and not easy to guess.
- Request a free copy of your credit report once a year. Review it for open accounts, credit inquiries, delinquencies and any other suspicious activity.
- Review your monthly credit card bills for any unauthorized charges and pay attention to billing cycles.
- Promptly collect your mail every day and put a hold on your mail when you are out of town.
- Shred receipts, credit card offers, account statements, expired cards, and any other documents that include personal or account information.
- Install firewalls and virus-detection software on your home computer.
Look for the signs
Your identity is one of the most important assets you own and should be guarded and monitored with that in mind. Look for the warning signs that your identity may have been compromised, which can be alerts from your bank, unfamiliar activity in your credit card accounts, changes in your credit score, missing bills for standard services like gas or electric, or any other suspicious activity.
What if you’re a victim?
If you’ve been a victim of identity theft, it’s important to act quickly. Here are the steps you can take to minimize the negative consequences and to alert the necessary authorities in the most efficient way possible:
1. Put a fraud alert on your credit reports
A fraud alert notifies lenders and creditors to take extra precautions when verifying your identity before extending credit. Contact one agency, (Experian, Equifax, or TransUnion) and they’ll contact the remaining two. Initial fraud alerts are free and remain in place for 90 days.
2. Check your Social Security number
One of the first things to do is check and see if your social security number has been compromised. If your number is part of the theft, it’s important to contact the Social Security Administration (800-269-0271) and the Internal Revenue Service (800-829-0433) to report and correct the activity.
3. Report the fraud to your financial institutions
If your credit card was stolen, report it to the credit card issuer. If your checkbook or debit card was stolen, contact your bank. It’s especially helpful if you have a list of institutions and phone numbers prepared in advance. Make sure this file is encrypted and not able to be easily accessed by identity thieves.
4. Contact the authorities
The Federal Trade Commission (FTC) allows citizens to file an Identity Theft Affidavit to create an Identity Theft Report. In order to fully file an Identity Theft Report, you need to report them the theft to local law enforcement. Have the police department send you a copy of the report and take down the report number. You can file an identity theft report online by clicking here or call the FTC at 1-877-438-4338. Filing an Identity Theft Report is a smart way to help credit reporting agencies identify who the thief may have contacted and determine where accounts were opened in your name.
5. Check-in with the Post Office
It’s not uncommon for identity thieves to submit a fraudulent change-of-address in order to access checks and new credit cards. It’s smart to check with the Post Office to see if any unusual activity has occurred. If there is fraud, you may need to contact the Postal Inspection Service to file a formal report.
Learning that you’ve identity has been stolen can be incredibly stressful, especially when the consequences can wreak havoc on your finances. Being diligent and protecting your personal information can help save you from that anxiety. But even if you do fall victim, acting fast and knowing who to contact will still offer some sense of control.
What are ancillary products (and are they really worth it)?
If you’ve ever purchased a vehicle, you’re probably familiar with the same old spiel – the finance guy (or gal) at the dealership sits you down and begins offering you product after product to protect your interest, and if you’re like most people, you end up feeling overwhelmed and confused. So, the question is, what are ancillary products and are they really worth it? Ultimately that decision is up to you, but we’ve highlighted some features and benefits about different loan protection options to help you make an educated choice the next time you’re faced with the decision to add ancillary products. Check them out below.
GAP insurance (or Guaranteed Asset Protection) is protection offered by finance companies, either through a dealership or through your credit union, to cover any difference on your loan (that your insurance doesn’t pay) if your vehicle is totaled and/or stolen.
- The cost of GAP can range from $300 to as much as $900 depending on where you purchase this coverage (e.g., through a credit union versus a dealership).
- If you are upside down (meaning you owe more than the vehicle is worth), GAP can be a huge money-saver. For a relatively small investment of $300 (competitively priced GAP), you could save thousands down the road. On the other hand, if you end up paying $900 (on the higher end of GAP coverage), your margin of savings will be much less.
- The key is knowing your Loan-to-Value (LTV). LTV is a percentage based on the amount you owe divided by the value of your vehicle. Example: if you owe $20,000 on your vehicle, but it’s worth $15,000, your LTV is 133%. Generally speaking, if you are over 90% LTV, you could benefit from GAP coverage. On average cars depreciate roughly 19% in the first year, and as much as 50% in the first 3 years – unless you plan on paying off your car in 3 years, GAP could be a huge money saver.
- Another factor to consider is some GAP policies will also pay your insurance deductible, so instead of paying $500 or $1,000 or higher (depending on your deductible), you pay nothing out-of-pocket.
Mechanical Repair Coverage
Mechanical Repair Coverage or extended warranties are offered in addition to the manufacturer warranty. The cost of extended warranties varies greatly depending on the make and the model of the vehicle, and who you purchase the extended warranty through.
Here are a few key questions you should ask yourself before considering the purchase of an extended warranty:
- How many years/miles does my manufacturer warranty have left on it? Most manufacturers offer a 3-year/36,000-mile factory warranty.
- What is the difference between the basic manufacturer warranty and the powertrain warranty? The basic warranty typically covers everything bumper-to-bumper, whereas the powertrain warranty only covers the powertrain and the associated parts.
- How long do I intend to keep the vehicle?
- How much will repairs cost if I encounter them down the road?
Most extended warranties cover you well over 100,000 miles – if you plan on keeping your car for longer than that, an extended warranty could be a great money-saving option. Some institutions will allow you to extend the term of your loan in order to absorb the cost of coverage while keeping your monthly payment the same. Of course, doing initial calculations and analyzing your budget and needs is necessary before making any financial decision.
Loan Protection is just like it sounds: protection that covers your payments or the entire loan balance following a significant life event, such as loss of life, unemployment, disability, and family medical leave. Some institutions, such as Georgia’s Own, provide additional protection for accidental dismemberment, terminal illness, hospitalization, and loss of life of a non-protected dependent.* The cost and coverage vary from institution to institution, so it would be wise to do your homework. Most institutions have a cost per hundred dollars of the current loan balance.
Highlights of loan protection programs:
- The events covered by most loan protection programs are: loss of life, disability, unemployment, and family leave.
- Most institutions offer various loan protection packages that can cover one, two, three, or all four of the life events mentioned. Some institutions offer additional coverage.
- Loan protection programs are available for most types of loans.
- There is typically a cap of coverage over a certain dollar amount.
Benefits of loan protection programs:
- Loss of Life protection can ease the burden on your family, and your debt can be completely cancelled.
- Disability protection could cover your payments for you when your income might be drastically reduced due to a disability event (most competitive employers only offer as much as 60% of your salary for a short-term disability).
- Unemployment protection could be invaluable in a time where you’ve lost your job unexpectedly and are unable to make your loan payments.
- If you are unable to work for an extended period of time, family leave coverage can help you maintain the same level of income.
The bottom line: There are a number of loan protection options available to help protect you when faced with the unexpected. Although these services come with a cost, it may be worth investing in the peace of mind these protection programs offer.
*Beginning August 1, 2017, Life Protection under Members Protection Plus will include even more. We’ve added accidental dismemberment, terminal illness, hospitalization, family medical leave, and loss of life of a non-protected dependent to our coverage.
#MemberAppreciationMonday: Tin Lizzy’s Queso!
It’s the first Monday of the month which means we’re bringing members another great deal thanks to #MemberAppreciationMonday and Tin Lizzy’s! Love queso? So do we – that’s why we’re treating our members to a free cheese dip at any Atlanta-area Tin Lizzy’s Cantina location*! Just show your Georgia’s Own credit or debit card through June 30th, and your cheese dip is on us! For more details visit georgiasown.org.
Millennials saving for uncertain future
How are millennials (we)Â saving for an uncertain future? According to an article by Michael Douglass from CNNMoney, millennials are saving earlier for retirement than their parents were. This is great news for us, but unfortunately the financial outlook is dimmer than in years past. In fact, recent figures from the Employee Benefit Research Institute state that millennials may need to DOUBLE how much we areÂ saving for retirement. This is due in part toÂ expert projections of howÂ the stock market will perform in years, and decades to come. Experts have stated they expect to see a steady decline in average stock gains. In addition to the declining stock market, Social Security might not be available for us when we turn 67.
What to do with such a glum outlook? Well, first things first, you need to have a plan. Do you know how much money you need to save for retirement? Does your job offer a 401k plan with a match? If not, have you considered opening an IRA and investing in mutual funds? Experts say you should beÂ saving roughly 10% to 15% of your income to live comfortably in retirement.Â Some expertsÂ suggest as much as 25% to ward off the potential financial woes of the future economic climate. Starting earlier is better, so the sooner you can start saving, the better off youâ€™ll be. Even a few years can make a substantial difference.
Here are a few quick tips to help you along your path to retirement:
- Have a plan
- Know your retirement savings goals
- Pay yourself first â€“ set aside a planned percentageÂ of money from each paycheck (preferably at least 10-15% or more, if possible)
- Talk to a financial advisor about your situation (they can be free of charge)
- Perform regular assessments of your retirement accounts and contributions to make sure that you’re on track for your goals
- Adjust your contributions as necessary to meet your goals
- Donâ€™t live beyond your means â€“ if you are living paycheck to paycheck, reassess your situation and find ways to make cuts or, better yet, increase your income earning potential
RetirementÂ savings plan
Investment expertsÂ suggest you should save double your annual income by the age of 35.Â The chart below is an â€œestimatedâ€ projection based on a starting annual income of roughly $35k at age 21, with regular 3%Â annual cost of living raises, a regular contribution of roughly 10% of your paycheck, and aÂ 3% rate of return from your retirement account.
*The retirementÂ chart isÂ forÂ illustration purposes only, and not to be used as a guidepost.Â
Note: This blog post is intended as informational only, and is not investment advice, consult a financial advisor before making any financial investment decisions.