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Your son or daughter is about to graduate college, and although they may have received an education of a lifetime, their understanding of their finances may still be a little hazy. Kids often leave school with mounds of debt and immediately look to their parents for support.  While there is nothing wrong with helping your child find their footing, teaching them about their finances will be knowledge that will support them throughout adulthood. Teach your college graduate these seven tips and watch their financial wings fly.

1. Take over the bills your parents paid for you

Once your son or daughter has a job, let them know they are responsible for their cell phone bill, car insurance and cable bill. It’s true that they may not be able to afford as many other things with this added responsibility, but they need to understand that you need to save for retirement, too.

2. Keep housing expenses to 25 percent–30 percent of your take-home pay

Find a great place to live, get a roommate, do whatever it takes to keep your total housing costs—rent/mortgage plus taxes and homeowner association fees—to 25 – 30 percent of your monthly paycheck. This will leave you some money to spend on:

3. Transportation to work

You need to get to work so it’s important to have a vehicle. Don’t let anyone talk you into more car than you can afford—negotiate based on the price of the car, not the length of the loan, so that you don’t get talked into a long-term loan that you’ll be paying off for years to come. With gas and upkeep, this could be about 10 percent of your take-home pay.

4. Start payments on your student loans

It’s time to read the fine print and understand exactly what type of student debt you have and what your options are to pay them off. Do not make one of the options to continue to not pay (put it in forbearance). This type of decision will only cost you more in the end as the interest fees are continually added back into the loan and increase it each month. There are many options to pay off your loan, find out which one works for you.

5. Save for retirement (which reduces your take-home pay)

If your employer offers a match through their retirement program then you are losing free money if you don’t join. The key is to start small and you’ll hardly notice it at all. Start with the amount that gets you the company match and, if the plan has low fees and good investments, increase your deferral each year by 1 percent.

6. Have at least $5,000 in a checking or savings account for emergencies

If your car breaks down or your refrigerator breaks and you don’t have enough to cover it, you do not have financial freedom. Financial independence is about personal finance issues not creeping into your day-to-day life; not worrying about how you’ll pay that next bill, but, instead, planning for the day-to-day so that you can focus on other important things in your life.

7. No credit card debt

If you’re living within your means, then there is no reason to have credit card debt. Your credit cards are a cash-flow tool, not a (very expensive) money machine. Use it for what it is: don’t put purchases on it that you cannot pay-off at the end of the month. If you do have credit card debt, find areas of your budget to cut back on so that you can pay this down as quickly as possible.

If your child is struggling financially after college, there is no harm in helping them, but never at the cost of your own retirement. Be sure and set an end date to help push them to financial freedom.

If you’d like to know if you are on track to reach your own financial goals, call 484.875.3072 to schedule a Comprehensive Financial Review.

PlumTree Financial Planning helps people get comfortable with their finances and make informed financial decisions by providing guidance on investments, tax-, insurance-, and estate planning.

PlumTree Financial Planning

(484) 875-3072, www.plumtreefinancialplanning.com

Email: bdandrea@plumtreefp.com

PlumTree Financial Planning has 5 offices to serve you: Malvern, Radnor, Bala Cynwyd, Philadelphia and Plymouth Meeting.

Beth D’Andrea