Ask Jill:

What are important financial goals for recent college grads?

A monthly Q&A with Jill Schlesinger, CFP®, host of the Jill on Money podcast

Disclaimer: Jill Schlesinger is an ambassador for Marcus by Goldman Sachs and has received financial compensation. However, all thoughts and opinions are hers.

Marcus by Goldman Sachs is the sponsor of the Jill on Money podcast, featuring Jill Schlesinger, a Certified Financial Planner, CBS News Business Analyst and author of the new book “The Dumb Things Smart People Do With Their Money”.

Listen to her podcast on iTunes and Stitcher.

The Scenario:

A parent who wants to know how to help a recent college grad make smart financial decisions.

The Question:

What should be discussed?

Jill’s Take:

First of all, congratulations to new grads and their parents! A good way to help grads get a handle on their finances is by having them track how much they’re earning at their new jobs and how much they’re spending. This is critical for all other aspects of their financial life. Some expenses may be a shock, especially if this is the first time handling expenses like rent, gym fees and, now that there’s no longer a university meal plan.

Once they know their cash flow, grads can try to tackle what I like to call “The Big Three,” or three of the most important financial goals in every recent grad’s life.

The Big Three include:

  1. Reducing consumer debt 
  2. Establishing emergency cash reserves (6-12 months of living expenses) 
  3. Maximizing retirement contributions

I cover the Big Three in the list of items below that you should be discussing.

How-To Guide for Parents and their New College Grads 

Reducing Debt

Create a list of loan amounts, the lender details, the interest rates associated with the loans and the monthly payment amounts due. 

Discuss how a repayment strategy will eradicate debt as quickly as possible. 

Of course income will drive how much grads can allocate towards this goal and as a result, how long they’ll be carrying the load. Have whatever amount will be going to pay down debt be sent automatically to the lender to avoid penalties or late fees.

Establish Emergency Reserves

If there’s no debt to manage, then graduates can work on building a safety net. Remember: this money cannot be put into risky investments—it needs to be liquid, in case they need to access the funds. Recent grads should also be sure to keep any money that they will need within the next year in this account.

Plan for Retirement

If the new job includes a retirement plan, encourage your new grad to use it. They should aim to contribute up to the match, if one exists. If not, they can begin by contributing as much as their cash flow will allow. Review the investment options within the plan and steer them towards lower cost index funds, if they are available. While there may be some resistance, help your grad understand the power of saving and investing for the future—you can use this calculator from FINRA.

Plan for Housing

If your graduate is going to live on their own (or with roommates), be sure to review the lease with them. 

One thing to flag is the ability for the landlord to hike the rent in subsequent years. Remember, every time they move, it will cost money so there may be an incentive to sign a longer lease that has a slightly higher rate in the first year.

If your grad will be boomeranging back home with you, it’s a good idea to create ground rules, which may include how long the arrangement will last and whether or not they will be paying rent. I recommend putting these types of agreements in writing to make sure you are both on the same page.

Review Paystubs

Make sure grads understand the different things that are withheld from their paychecks like federal and state income tax withholding; Social Security and Medicare taxes – also known as FICA taxes; health insurance premiums and retirement contributions. 

Check Credit

As young adults develop their own credit records, they need to understand how important it is to pay bills on time and how they need to guard their personal information. Have them review their credit reports every 12 months at annualcreditreport.com and if there are errors, they will have to correct them.

This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this site were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.