Your college grad kid’s first big paycheck should be cause for celebration (although if this is the first time they’ve seen taxes taken out, it’ll also likely be a bit of a shock). It should also be a reminder to reinforce the financial lessons you’ve been discussing since they were young. Here are some money tips they should keep in mind for that first post-grad paycheck.
Set the Splits
Make sure your college grad has a solid budget worked out. One easy way is the so-called 50/30/20 split. Here’s how it works:
Start Retirement Savings
Now is the time to start saving for retirement (if the college grad hasn’t already). If they work for a company with a 401(k), have them set up auto deposits. If the employer matches contributions, stress to your college grad that they should try to hit the max to take advantage of the free money. As USA Today reports, if there is no company-backed plan, have your college grad open a Roth IRA.
Tackle The Student Loan
While there’s typically a grace period for student loan payments, encourage your kid to start paying right away so that they can save on interest. If your grad has a federal loan that is making it too difficult to make on-time payments, tell them to contact the loan servicer and ask about an income-driven plan. This repayment plan caps payments at 10 to 20 percent of their income.
Keep an Eye on Credit
Reinforce the importance of good credit. Explain how they can access their credit reports for free from their financial institution or from the three bureaus one time per year each at annualcreditreport.com. Make sure they know to report any inaccuracies on the report. Also, remind them how important it is to pay all their bills on time each month to keep their credit score high.