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8 tips to help recent grads establish financial independence

Shutterstock_309048455School's out for summer! And, for some, school is out for good. In honor of America declaring its independence, here are 8 tips from the American Institute of CPAs' National CPA Financial Literacy Commission to help recent college grads declare their own FINANCIAL independence now and for the future:

1. Have a plan to repay student loan debt. While paying off significant debt takes time, establishing and sticking to a plan will put you on a good path toward your financial independence. The AICPA’s 360 Degrees of Financial Literacy website has free resources to help create a plan to reach your financial goals.

2. Avoid carrying balances on credit cards. Try to budget your purchases to allow you to pay your credit card in full each month. If you already have balances, start to set aside some funds each month to pay them down. Credit card interest can mount up quickly, especially when you just pay the minimum each month.  Money which could otherwise contribute to your financial independence is instead going to the credit card company. Be sure you know the pros and cons of owning a credit card.

3. Manage your credit score. Financial independence includes the ability to carry an apartment lease or finance a car on your own, without a co-signer who may be required if your score is too low. Your credit score can be dinged by things like late payments, balances near the limit on one or more cards, or a collection of relatively new cards (like those that are sometimes offered in stores with the promise of a quick discount on that day’s purchases.)

4. Keep your monthly costs manageable. When combined with expenses like groceries and utilities, monthly costs such as rent, car payments, gym memberships, cell phones bills and electronic subscriptions can approach and even eclipse your income, leaving no room for savings. Think about what you can comfortably afford when taking on recurring bills and plan your spending.

5. Consider roommates instead of living by yourself. Use the extra money to pay down student loans, other debt, or fund your retirement.

6. Build an emergency fund. It’s a good idea to have enough cash and “liquid” type investments (like money market funds) to cover at least six months’ worth of ongoing expenses.  An unplanned gap between jobs or major expense, like a car repair, can come along when you least expect it.

7. Make sure you have adequate insurance. If disaster strikes – you suddenly lose your job, your car is in a fender bender, a flood damages your apartment and all your belongings – the right insurance can protect you from a loss that you can’t afford to pay for.  Check with a professional insurance agent to be sure you have proper coverage.

8. Take advantage of employer matches. It’s never too early to start saving for retirement. You may not have much extra to put away each month at this time of your life, but you should be sure that you are contributing to your employer 401K or 403B matches – That’s “free” money!

 Jon Lynch, Manager, Public Relations, Association of International Certified Professional Accountants

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