Most school curriculums don't dive into money management.
You learn a lot in school, but how to manage your money is rarely one of those things. Which is unfortunate, because let's be honest, how often are you likely to use the quadratic formula in your day-to-day life?
We have more than 60 years of combined personal finance experience on the CNET Money Team, but we gained most of our knowledge the hard way. We've made money missteps and let opportunities pass us by, and we want to save you from the same stumbling blocks. So we asked our team members to share some of the key things they wish they'd known sooner.
Read more: Money Anxiety? Here's the Expert Advice I Followed to Get Smart With My Finances
How student loans work
This one's for the high school graduates specifically. The average student loan balance is almost $40,000. That's a massive debt to shoulder so early in life. Student loans can help make college more affordable, but many of us don't fully grasp what we're getting ourselves into.
Before applying for a student loan, make sure you fill out the FASFA -- Free Application for Student Aid -- to learn which federal grants, loans and other financial help you're eligible for. Also, apply for any and all private scholarships and grants you qualify for. The more free funding you can get, the less you'll need to take out in student loans.
Next, you should know the difference between federal and private loans. Federal loans, funded by the US government, can be:
- Direct subsidized loans: The US Department of Education pays the interest on the loan while you’re in school at least part time, during the six-month grace period after graduation or if your loans are in deferment.
- Direct unsubsidized loans: Loan interest accumulates during all periods, even when you don't have to make loan payments (like while you're in school or during deferment or forbearance). You can choose to pay this interest at any time.
- Direct PLUS loans: Your parents (adoptive, biological or stepparents) can apply for these loans to cover your education expenses. They're responsible for repaying them.
Private student loans are offered by banks, credit unions and other funding sources. They can help cover any remaining shortfalls, but beware that the terms are often less favorable than federal loans. They may have higher interest rates, and they don't offer repayment assistance like forgiveness or income-based payment plans.
If a loan is your best option to pay for college, do your research before applying for one. Look into the degree you want and compare tuition costs at multiple colleges. And don't overlook community college programs. Many of them now offer paths to four-year degrees through partnerships with state schools -- a path CNET Senior Editor Courtney Johnston wishes she'd taken.
You should also know the average starting salary for the job you want in your area. Use that figure and your estimated loan amount to determine how much you'll likely pay each month when your student loans come due. Johnston recommends the student loan calculators on StudentAid.gov.
Note: Many features of the current student loan program are in limbo. Student loan forgiveness options are tightening, and a GOP proposal to overhaul federal student aid could increase eligibility requirements for Pell Grants, set a limit on how much students can borrow and further change student loan repayment programs. If you're just starting college, these proposals could affect you before you earn your degree. Experts recommend going into college thinking about the total cost, not just the first year.
The importance of building a savings habit
Establishing a savings habit -- even if you don't have a ton to put away -- can help you build an emergency fund and cover unexpected expenses without going into debt.
Knowing where to keep your savings is equally important. Two great options to start with are:
- High-yield savings account: HYSAs can offer APYs more than 10 times the national average interest rate. Look for accounts that require a low or no initial deposit and avoid banks that charge monthly fees.
- Certificates of deposit: A certificate of deposit is a special savings account that offers a fixed rate in exchange for keeping your money in the account for a set period, or term. CDs are best for money you can afford to lock up for a specific time, because if you withdraw your money before the term ends, you’ll pay an early withdrawal penalty.
How to use credit cards responsibly (and why you should)
Credit cards are an easy way to cover costs, especially when you're working with an entry-level income. But they're also an easy way to get locked into a never-ending cycle of high-interest payments that can hamper your finances for years to come.
That said, there are ways to use credit cards responsibly. Check out these resources to learn more:
- How interest works: Only paying the minimum on your credit card will cost you several times over due to interest charges.
- How your credit score works: Your credit score -- the three-digit number lenders use to determine your creditworthiness -- can affect everything from your ability to get a loan to the rate you pay on one.
- How to boost your credit score: Whether your score is low or you're just starting out, these tips can help you improve it. Â
Student credit cards are an ideal way for grads with limited credit history to establish credit and earn rewards.
How much you should keep in your checking account
A checking account is the best place to keep money you'll use for monthly bills and purchases. Look for an account with a competitive APY and no monthly fees, minimum balance requirements or overdraft charges. But even with the right checking account, you can lose out by keeping too much money in it.
If you have considerably more money in your checking account than you need for everyday expenses, consider moving some of it to a high-yield savings account or CD. Most checking accounts pay little to no interest, but an HYSA or CD will allow you to maximize the amount of interest you can earn, growing your money faster.
How to do your taxes
If you’re joining the workforce, be prepared to pay taxes on your income. Meeting with a tax professional can help you avoid mistakes and plan for the best outcome, but it also pays to know some basics, including:
- Tax preparation software that can help you file your returns
- How to fill out a W-4 correctly
- How to report side hustle income on your taxes
Why you should contribute to retirement savings now
Retirement may be in the distant future, but that doesn't mean you should ignore retirement planning. As a recent graduate, time is on your side. Thanks to the power of compound interest, saving even a small amount over time can add up significantly -- and the sooner you get started, the better off you'll be.
Once you begin working, open a tax-advantaged retirement savings account to save a portion of your income before it's taxed, reducing your taxable income. Common tax-advantaged retirement savings plans include:
- 401(k): A retirement savings account established by employers to help employees save for retirement
- 403(b): A retirement account offered to employees of organizations such as schools, charitable organizations and other tax-exempt entities
- Traditional IRA: An individual retirement account not connected to an employer, which you can establish through a bank, broker or robo-advisor
Employer-sponsored retirement plans may also match your savings contribution up to a limit. For example, some companies match contributions up to 6% of your income. That's essentially free money.
Go forth and prosper
Now that you've prepared academically for the next part of your journey, it's time to focus on improving your financial literacy skills. Starting your next phase with a solid financial foundation will help you ease the transition and avoid unnecessary pitfalls.
Congratulations on your accomplishment!
