From paying off student loans to saving for retirement.
For grads who are stressed about the numbers in their bank account—take a deep breath. This week's "Adulthood Made Easy," with host Sam Zabell, breaks down the most important issues young adults need to worry about, as well as the savings plans that will set them up for the future. Zabell is joined by Donna Rosato, a business journalist and senior writer at MONEY, who shares her wisdom on the major money issues most grads will face upon graduation. Below, some of her advice on the most important topics:
1. Student loans: Rosato's best advice is to increase how much you're paying when your salary increases—it might seem like a big financial commitment initially, but dragging it out over a standard 10 year plan can mean that you pay a lot in interest. If you need help deciding on a payment plan that's right for you, she suggests using the government's Repayment Estimator to help map it out.
2. Budgeting: Think of it more as a "spending plan." Everyone will find a system that works for them, but one important rule to start with is the 50-30-20 rule. 50 percent will go towards fixed costs/needs like rent and groceries, 30 percent for the fun stuff like shopping and eating out, and 20 percent for savings and debt payments. If you have many student loans, you may need to adjust those numbers.
3. Retirement: It's incredibly important to start saving for retirement early. Often, companies will offer a 401k investment plan, which you can automatically contribute to via your paycheck (so you'll never even miss the money). Plus, the money you contribute is pre-tax, which reduces your taxable income, and grows tax-free as you continue saving. These 401k accounts are transferrable, so wherever your career path takes you, the money follows. Another savings option is a Roth IRA, which is an option for those working for a smaller company (like a start-up) where 401k plans are not offered. You contribute to this account after taxes, and once you take out the money you don't have to pay any taxes on it. This is especially helpful for graduates who likely aren't taxed at a high rate on their current incomes. Rosato calculates that if you started contributing at age 22 with $5,500, you would end up with more than one million dollars by the time you're 65.
For more on saving, retirement, and money mistakes all grads should avoid (you need an emergency fund), listen to the full episode below, and don't forget to subscribe and review on iTunes!