A Top Financial Priority After Graduating College

You have put in the work (and the time) and graduated college. Congratulations! According to a Pew study released last year, you have also broadened your shield against the adverse effects the recession has had on the job market. There will be plenty of temptations to spend what you earn in paycheck-to-paycheck fashion during your first few post-grad years. However, opening and contributing to a retirement account with even a small portion of your monthly earnings is worth the requisite diligence (and sacrifice), and here are a few reasons why it should be one of your top financial priorities after college.

Starting and Maintaining Good Habits

Bad habits can form quickly and easily. Conversely, good habits tend to be slow to form. Living paycheck-to-paycheck has its perks – any positive number you see in your bank account can immediately be taken to the store (or the internet) and spent in a short period of time. Re-fund the account, repeat the process, and experience the bliss of consumption.

Even if you are planning to indulge a habit like this for just a season, it could be more difficult than you think to abandon the mentality. Aristotle once said, “Good habits formed at youth make all the difference.” Because you will most likely live beyond the age of 30, solidifying the habit of repetitive saving in your financial youth could be crucial to your financial future.

A Little Becomes A Lot with Time

Once you have begun forming the habit of saving, the idea that time usually adds value to money should be an encouraging prospect. One of the reasons a Roth IRA, in particular, is a great vessel for your savings is because it adds both discipline and incentive to help you take advantage of time value. That discipline comes in the form of certain distribution penalties, and the incentive comes in the form of tax-free earnings (if you are disciplined enough to leave earnings alone until age 59½). A Roth also gives you the flexibility of a savings account by allowing you to withdraw any contributions (not earnings) at any time for any reason. This flexibility may come in handy if you decide to pay off a student loan with one lump sum, for instance.

Take Investing Risks Early

Making retirement savings a top priority after you graduate from college will also give you the chance to make riskier (and potentially more lucrative) investments. The longer you wait, the more likely you will have major things like a family, or a house, depending on your portfolio’s performance. The tendency is to become more conservative with age in terms of one’s personal investing strategy.

Avoid Having to Catch Up Later

A standard savings account tends to be used for shorter-term goals like vacations, cars, and houses. To avoid having to catch up on retirement savings later, and to take advantage of your (probably) lower tax bracket now, a Roth IRA could be a great move in your twenties.

While there are undoubtedly other important parts of your overall financial budget (like student loan repayment management), saving early and often should consistently be at or near the top of your list in your first few years after graduation. The mentality created by your retirement savings efforts, regardless of how monetarily small, will help you sustain this good habit well into your future.

Article courtesy of Patrick Russo, Community Outreach, http://www.depositaccounts.com.

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Start Them Young to Learn How to Save

Children can learn money skills as early as age 3! Here are just a few tips to help young credit union surfer savers Catch the Save Wave™:

* Have young children—preschool age—sort different types of money into piles by color and size.

* Play grocery store or credit union/bank. Help them use a pretend cash register.

* At the grocery store, let youth of all ages help you shop. Teach them how to comparison shop. For example, show them that for every $4.85 box of cereal, there may be similar brands on sale for half as much.

* As youth get older, let them know what things cost. Share sales receipts for items you’ve purchased for them and for bills you’ve paid.

* If you decide to pay an allowance, include youth in the decision-making process. Discuss allowance amounts and expectations. The amount is your call, but ask for their input. One idea is to have children set aside part of their allowance for spending, part for saving, and part for sharing or charity. Clarify what you’ll pay for and what they are responsible for. For example, when you’re at the movies, maybe you agree to pay for the ticket, but the Milk Duds are on them.

* As youth reach high-school age, reexamine the rules. Clarify what you will pay for and what your teenager is responsible for. For example, your teenager may want the newest cell phone that comes with a high price tag, so establish your spending limit. If she still wants the more expensive version, have her make up the difference. Oftentimes, once the responsibility of paying for items is on the teenager, the “latest and greatest” isn’t so important.

Get youth started on the right track financially. Bring them in to Hopewell Federal Credit Union—we have more ideas to help you raise children to be financially savvy young adults. 

What to Do When Retirement Sneaks Up on You

Retirement can creep up on you. Suddenly you’re scrambling to get everything done. Even if you have saved enough money, there are other details that need to be attended to before you can retire comfortably.

Here are some tips to keep you on track:

Give yourself time
Even if your retirement is hastier than you’d planned, some things simply take time, so identify those and plan accordingly.

For instance, to sign up for Medicare, part B takes a minimum of five weeks for enrollment, and if you don’t sign up in time you could end up paying as much as $800 for a month of COBRA until Medicare kicks in.

Consider the intangibles
There are personal and family characteristics that contribute to or impede successful planning.

As to roles, note how the process works if it’s a single individual or a couple. If a couple, who’s in charge? Are there other family considerations—children, blended family, extended family responsibilities?

If a couple, do you communicate well? Is one person anxiety-prone? This can actually be converted into a performance-driver if recognized and harnessed.

Identify your strengths and weaknesses, and make the process work with what each person brings to it.

Get the right adviser
Get to know the values and style that a particular adviser offers, and see how well they mesh with your needs. Are your risk tolerances seriously different?

A good financial adviser is a third party that helps you make rational, practical decisions. Choosing a financial adviser that you and your spouse both relate to will liberate you to enjoy your retirement time in other ways.

The Essential College Financial Checklist

As you begin your college career, you’ll likely be heading out on your own for the first time. That means the days of free room and board or meals cooked by Mom are gone, and you’ll have to manage your own finances. To ease your transition into financial independence, be sure to check off the following items from your financial checklist.

  • Understand your financial aid package

You’ll likely be using some financial aid to cover school costs, including tuition and fees, room and board, books and supplies, and transportation. Knowing how much of your college expenses your aid package actually covers will help you make decisions on how much to save and how to budget accordingly. Financial aid includes:

1. Need-based aid is calculated by subtracting your expected family contribution from the cost of attendance at the school, which is information you submit on the FAFSA form. The difference is the amount you are eligible to receive. Federal need-based aid programs include:
• Federal Pell Grants
• Subsidized Stafford Loans
• Perkins Loans
• Federal Supplemental Educational Opportunity Grants
• Work-study
2. Non-need-based aid does not take your financial need into account. It is calculated by subtracting your financial aid awarded so far, such as scholarships, from the cost of attendance. Federal non-need-based aid programs include:
• Unsubsidized Stafford Loans
• PLUS Loans

Be sure to fill out the FAFSA to see what kinds of financial aid you may be eligible for, even if you think your family makes too much money to qualify.

  • Open a credit union account

Opening your own checking account will help you establish financial autonomy and responsibility. Especially if you are attending college away from home, you’ll need to be responsible for purchasing your own necessities. When choosing a new account, look for these:

• Low or no monthly fees
• Mobile and online banking features
• Easy access to surcharge-free ATMs on or near campus (Hopewell FCU members can use Alliance One or Pulse ATMs for free)

A checking account will make your financial aid disbursement easy, since you can set up direct deposit with your school. With direct deposit, you’ll have access to your money faster, and you’ll also avoid paying any check cashing fees. It’s also a good idea to open a savings account and set aside an emergency fund instead of relying on a credit card if an unexpected expense pops up.

  • Open a credit card

Opening a credit card can help you build credit, which you’ll need when it comes time to rent an apartment or buy a house or car. Keep in mind that if you’re under 21, you’ll need someone to co-sign for your credit card. Make sure to open only one and treat it like a debit card. Use only as much money as you actually have in your checking account and pay it off each month.

  • Make and follow a budget

Schoolwork aside, budgeting may be your most important assignment. Determine where all of your money will go, so you can save and prevent racking up unwanted debt. You can either create your own budget or use a budgeting app. If you choose to create your own budget, pick a time frame for it (monthly is usually easiest), and follow these steps:

1. List your income
2. List your expenses
3. Consider how much you would like to put into savings for emergencies or a big-ticket item
4. Subtract your total expenses (including savings) from your total income and make sure it balances – you should either break even or have some money left over

If your budget doesn’t balance, find where you can cut spending or increase your income.

Cherise Fantus, NerdWallet

 

 

 

Five Steps to an Early Retirement

Early retirement may not be the easiest goal to achieve, but it is possible. These steps can help lead you in the right direction.

Step 1: Schedule a financial check-up.
Find a financial adviser you’re comfortable working with (ask friends for referrals or contact your credit union) and set up an appointment. Gather your paperwork, including account statements and tax returns, and make a list of retirement goals.

Step 2: Make your dollars work harder.
Make a list of your assets–everything from savings bonds to your 401(k) plan–and calculate how much of your total portfolio is invested in cash, stocks, and bonds. Adjust your allocation to maintain the right proportion of each for your age, risk tolerance, and goals. A financial professional can advise you on the most tax-efficient way to reallocate.

Step 3: Make the most of your employee benefits.
Find out exactly what retirement benefits your employer offers and figure out where they fit into your early retirement plan. If the company offers a tax-deferred savings plan, sign up. Contribute at least enough to get the maximum matching dollars.

Step 4: Own your home.
If you haven’t bought a home yet, start saving up for the down payment and contact the credit union or the HUD Housing Counseling Line 800-569-4287 to learn how to make homeownership a reality. If you do own a home, be careful about tapping into the equity before retirement.

Step 5: Plan for semiretirement.
Start preparing for a retirement “career.” It can be an extension of what you’ve done during your working life, like substitute teaching or consulting, or it can be something entirely different. Find out what will be required for your new vocation and start developing your skills.