I’m out of School, now what?

Transitioning from school to the workforce may be one of your biggest life-changes. Suddenly, spring break is a thing of the past, and you have to think more seriously about things like taxes, insurance, student loan debt and maybe saving for a house or condo. Managing your finances and building your assets can be a synch with the right expertise and financial savvy.

Joining the Workforce

If you’re working full time, for the first time, you may be shocked at how much comes off the top of your paycheck. And when you get your tax refund at the end of the year, you might be pleasantly surprised at the chunk of money you get back

  • Some might be tempted to have their employers over-withhold, as an enforced savings method, which is like handing out an interest free loan. You are better off using that extra money to your advantage to earn interest.
  • As for under-withholding in order to use your earnings for immediate expenses, we have four words: just don’t do it. You’re still going to owe the IRS at the end of the year.

Creating an Emergency Fund

Even when you’re living from paycheck to paycheck, financial advisors emphasize the importance of starting an emergency fund for tough times.

  • Your fund should consist of a substantial, accessible sum of money that you will use only in case of real emergency, such as losing a job and/or having to relocate suddenly. Most experts advise setting aside at least six months’ salary
  • The most important thing you can do to ensure the success of your emergency fund is to get in the habit of putting money away consistently, just as you would pay a monthly bill.
  • You'll also want to be sure your money is readily available when you need it. An MHV savings account is one idea, but it’s not the only one. For example, MHV money market accounts and certificates typically offer higher interest rates than savings accounts, with little (if any) increased risk.
  • An easy way to fund your account is via direct deposit from your paycheck (MHV can help you choose the right savings vehicle and set up the deposit). Start with a small amount and increase it as you learn to budget and seek out new ways to save.

Building a Credit History

If you have a car loan or student loan in your name, you’re already on the road to building credit-worthiness

  • If not, you may want to start with an MHV low limit credit card. Using it judiciously will give you practice in budgeting and access to credit, and as you use it responsibly, your credit limit – and credit history – will improve. MHV has great low, intro rates on Visa credit cards. Check them out here.
  • When you’re ready to trade up your car or buy a new one, consider taking out a small car loan even if you can afford to pay cash. Paying back a consumer loan is an excellent way to improve your credit report. MHV offers super low rates on car loans; find out more here.

Watching your Back

There are lots of types of insurance out there such as mortgage insurance, disability insurance, long term care insurance and even pet insurance. At this point in your working life you need to be primarily concerned with the Big Four: auto, life, health and homeowner/renter’s insurance.

  • Auto insurance: If you have a car, you have to insure it. But even beyond comparison shopping, there are ways to reduce your payments.
    • If your old clunker is worth less than $1,000, consider dropping expensive collision coverage.
    • On newer vehicles, you can increase the deductible – meaning that if you have an accident, you’ll pay more out-of-pocket before insurance kicks in – or lower coverage limits to reduce premiums.
    • On newer vehicles, you can increase the deductible – meaning that if you have an accident, you’ll pay more out-of-pocket before insurance kicks in – or lower coverage limits to reduce premiums.
  • Health insurance: with soaring health care costs, this is one type of insurance you can’t afford not to have.
    • If your employer offers a choice of policies, make sure you select one that reflects your needs. For example, pediatric practices may not be on your horizon, but you should be sure you’re covered for the sports medicine clinic you have on speed dial.
    • You could opt for an HMO – a local network – if you don’t travel much but it might not make as much sense if you’re always out of town.
    • If your employer can’t cover you look for associations you may join, such as a local chamber of commerce or trade association that can purchase group policies.
    • Another option is to open a Health or Flexible Savings Account (HAS or FSA) if offered by your employer. This is a special account dedicated to medical expenses not covered by your health plan. The money is taken from pre-tax income and can be used for qualified medical expenses such as co-payments and over the counter medicine, completely tax-free.
  • Life insurance: While life insurance may not be top-of-mind, it’s never going to be cheaper than it is right now. Premiums are low for young adults, and the policy will have plenty of time to grow. Starting early can save major money over your lifetime.
  • Homeowner’s/renter’s insurance: There’s no question that if you’re investing in a home, you need to insure it. Homeowner’s insurance can also protect you against slip-and-fall lawsuits and other liabilities. Even if you’re a renter, you should strongly consider renter’s insurance which will cover personal articles in your home, car and other travels.


Investment ABCs

The idea of jumping into the investment arena can be scary, but it doesn’t have to be if you take it a step at a time, and ask questions as you go along.

  • The first, most important lesson is understanding the difference between saving and investing. With savings (savings accounts, Certificates, IRAs), your principal typically remains constant and earns a steady interest or dividend. Investments, in contrast, can go up or down in value and may or may not pay interest or dividends. While investments are more risky the payout can be larger. Examples of investments include stocks, bonds, mutual funds and real estate.
  • Because everyone has different goals and expectations, each person will have a different investment strategy. Consulting with one of our MHV Investment and Retirement Representatives could be the smartest move you make. He or she can help you look realistically at your goals and timelines, identify your comfort with risk and suggest types of investments. Even if you’re not ready to put yourself in the hands of a professional, there are some simple investment tips you can and should take right now:
    • Get in the habit of saving. (Direct deposit is a great, and painless, way of doing this.)
    • Focus on long-term potential rather than short-term price fluctuations.
    • Don't put all your eggs in one basket. Diversify and spread the risk over multiple investments.
    • Make sure you understand the payoff of risk vs. potential reward. Investments range from the safe (FDIC-insured savings accounts, T-Bills) through conservative (such as U.S. government notes and bonds) and growth-oriented (Blue Chip stocks and mutual funds) all the way to outright speculation (venture capital, art and commodities). Generally, the younger you are, the more you can risk, but you should always be sure to build from a sound foundation.
    • Invest with your head, not your “gut”. Avoid the urge to invest based on how you feel about an investment or company.
    • Review your investments on a regular basis to make sure they’re still working for you. As you get closer to retirement, you will probably want to start shifting money from higher-risk investments to slower-growing, more stable ones.

Marriage and Children

Even before the bride walks down the aisle, or skydives from a plane, marriage will impact your finances.

  • Are you planning to go for the over-the-top dream wedding or honeymoon or decide to save your money for setting up housekeeping? Will you combine accounts with your partner or maintain separate accounts?
  • Be sure to talk to an accountant about whether it makes more sense to file individually or jointly at tax time.
  • Now that you’re combining households, it’s time to look at your individual budgets and savings/investment goals. Also consider your new expenses and obligations. You and your partner may decide to start saving aggressively for a home or set aside money for the time when your family starts growing
  • Be sure to check out our Life Stage 1: Cradle to College page to check out some of the financial ramifications of childrearing. It’s loaded with tips to help you raise your growing family on a solid financial foundation.

Working: Advancing or Changing your Field

Promotions are sweet, especially when they come with a nice raise.

  • Before you get used to spending that extra money, review your budget and savings plans to make sure you’re allocating them intelligently
  • Changing jobs is always a challenge. If you have investments in a 401K or other employer plan, make sure you roll them over into an appropriate plan when you move into your new employment so you don’t lose anything.
  • Going back to school to train for a new career or starting your own business? Congratulations! The challenges, and potential rewards, are huge. MHV can help you plan and pay for college. Check out our great resources here.

Looking Forward … to Retirement

We know, we know – you’re just getting started. Retirement seems many decades away and you can’t even begin to think about it. But in fact, the sooner you start to prepare the better off you’ll be. There are plenty of good reasons to get started now like:

  • Starting early lets you take maximum advantage of the power of compounding. If you start saving now and leave your accrued interest in place, even at a modest rate, your money can double, and double again without any effort on your part. The longer you let your money work for you the bigger your numbers get.
  • Building retirement savings helps ensure your financial future. When you want a larger line of credit or a major loan such as a mortgage, banks and other lenders will look at your total assets – including retirement accounts as well as your history of paying back loans. Should worst come to worse, you can liquidate or borrow against retirement funds.

Where to begin? The best place is with your employer. And should you change jobs down the road, make sure you roll over any retirement funds so that you don’t lose them!

  • If your employer offers you the option of a 401K or 403B plan, jump at it! Every dollar you put away will be taken out of your gross pay, so you get even more savings for your money. For example, if you’re in a 30 percent tax bracket and you use $1,000 to fund your 401K account, you get the full $1,000 instead of the $700 you’d have after taxes.
  • If your employer matches contributions, even better. Maxing out your contribution will get you the equivalent of a nice bump in pay.
  • Look to open an IRA account which has five options to choose from each having different tax benefits and annual contribution limits. There are Traditional IRA’s, Education IRA’s, SEP IRA’s (which stands for Simplified Employee Pension), SIMPLE IRA’s (another employer-sponsored plan), and ROTH IRA’s.
  • Sit down with an MHV Investment & Retirement Center Representative to figure out which IRA(s) and/or other investment options (annuities, stock plans, life insurance, etc) will help you to achieve that comfortable retirement.

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