Although college graduates leave their institutions of higher learning with a diploma in hand, often many are lacking in personal finance know-how.
Even worse, college students often don’t know what they’re lacking in knowledge when it comes to money. In 2015, 57% of college students rated their financial skills as either good or excellent, according to a survey from the American Institute of CPAs. Yet, only 39% of those college students surveyed had a monthly budget. And, almost half said that their bank account balance had dipped below $100.
The post-graduation period can be a crucial time for establishing smart money habits that can pay off over a lifetime. A student financial planner — or a financial advisor for college students who have recently graduated — can offer invaluable advice during this unique transitional period when it comes to making financial decisions.
How a financial advisor can help a college graduate
A financial planner’s role is to help guide clients toward their best possible financial outcome. If you’re a recent college grad, a financial planner can help you work through many financial firsts you may be facing. These can range from managing a higher income to tackling student debt, as well as planning and saving for the future.
We talked to some financial planners to see how they help college graduates get a head start on their finances. Here’s what they had to say.
Get on the right path from the start
The months and even years right after college are a critical time in your financial life. That’s because “bad money habits are not yet established,” said Brett Walters, a certified financial planner (CFP) and founder of Trident Financial Planning based in Nashville, Tenn.
Making mistakes and figuring out your finances through trial and error can be messy and painful. But a financial planner can help you get it right from the start. “Making a small positive impact can yield tremendous results given the long time horizon,” Walters said.
“Most financial decisions that will have a lasting impact 30-40 years down the road occur when you’re in your 20s [like] buying a home, getting married, starting a business, investing for retirement,” said Stephen Alred, Jr., a wealth advisor in Atlanta.
That’s where a financial planner comes in. “It is important to have a financial accountability partner to help steer you away from bad decisions and towards ones that align with your life’s goals,” Alred said.
Make a plan to pay off student debt
For college students and recent graduates seeking the help of a financial planner, one of their most common goals is to figure out how to effectively tackle student loans.
“Millennials are saddled with more education debt than any generation before,” said Mel O, a CFP with Hot Moon Financial in Las Vegas. “It is important to get together a strategy of how to start tackling that debt.”
With today’s student debt outpacing graduates’ earnings, many will find their student loans unaffordable. This is why knowing your financial options is so important.
“Student loans can be incredibly complex,” said Matt Hylland, a financial planner with Hylland Capital Management. “Should you refinance? Are there forgiveness options or special payment plans available? Is your loan forgiveness taxable?”
A financial planner can help you find the answers and figure out the most advantageous student loan repayment plan for you.
Create a post-college budget
Graduates may have a higher income to budget with after college than they did as students. However, they will also face new costs, from paying for new housing and other expenses to repaying student debts. Yet, many college students don’t budget their finances and regularly have extremely low bank account balances. That’s not a recipe for sound financial management after college.
Additionally, with a higher income, college graduates may have to battle the impulse to spend it. “With the new income, there is a temptation to go out and spend money on cars, apartments, cellphone plans, etc.,” said Joseph Orsolini, a CFP with College Aid Planners.
Orsolini pointed out that for instance, many graduates will get all of the above things, which will add to their fixed monthly expenses. Yet, they don’t realize that their student loan payments will start six months are they graduate and the grace period ends. “It is difficult to add in a student loan payment when most of your paycheck is covering fixed expenses,” Orsolini said.
Getting a financial planner’s assistance to create a budget can help you create a spending plan that’s both realistic for today’s needs as well as helpful for planning and saving for the future.
Prioritize financial goals
Part of creating a smart budget is knowing what you’re working towards. Deciding on your most important financial goals can help you more efficiently prioritize your dollars to achieving them.
Walters said the top questions he gets from recent college graduates are how to decide whether to put retirement, student debts, saving for a home or other financial goals first. “Not everyone’s answer is the same,” Walters said. “Each individual’s situation is unique and many factors will influence what is the best for them.”
According to Walters, this is why it’s important to start meeting with a financial planner as early as possible. “[T]hey can help provide peace of mind by providing you with a sense of direction of what is best based on your individual circumstances,” he said.
Start saving for retirement and investing
Another common task that financial planners can help new graduates with is saving for retirement. Getting an early start on retirement savings can have tremendous payoffs later. A financial planner can help ensure your investments are optimized for the greatest returns.
If you’re working your first job and dealing with retirement savings accounts for the first time, you’ll probably go with the default 401(k) plan and contribution options. However, going with a default 401(k) allocation may not be the best option for you.
“For a recent college grad who was never taught the ins and outs of investing in 401(k)s or asset allocation, this is not a decision to make on a whim,” Hylland said.
A financial planner, however, knows all about retirement savings accounts and investment strategies. He or she can help you choose investments that balance your levels of risk and return.
Choosing a financial planner for the first time
The benefits of getting a financial planner as a recent college graduate can be well worth the investment. But make sure you do some research to find a qualified financial planner with affordable, transparent fees.
“I agree wholeheartedly that college grads desperately need financial advice,” said Robert Wilson, a financial advisor with Wilson Insight. “They just need to make sure that they get it from the right source.”
A fee-only planner is usually the place to start. These financial planners typically charge a flat rate for advice and don’t have a payment structure that incentivizes them to push financial products that may not be beneficial to you.
Also consider avoiding financial planners that won’t meet your financial needs. Many financial advisors focus on providing investment advice, but that isn’t what recent college graduates necessarily need the most.
“[Instead], they need to speak with an advisor that will help them create a system that gets their finances in order,” Wilson said. “Especially since many of them have no experience managing money and were definitely not taught how to do so in school.”
Where to find affordable financial advice
If you are like many recent college graduates starting work for the first time, hiring and paying a financial planner might not be your first priority as you balance paying rent, covering the necessities and starting to repay your student loans. Depending on your first job, you might not be able to afford a financial planner.
However, it is possible to get free or low-cost financial advice. Assistance is available from credit counseling agencies such as the National Foundation for Credit Counseling or American Consumer Credit Counseling. In addition, Financial Planning Association (FPA) chapters around the country provide free financial planning knowledge and guidance from certified financial planners. You can go check the FPA sitefor links to local chapters that will provide information on resources available in your area. And if you specifically need help figuring out how to repay your student loans, you can search online for organizations that offer free assistance with that task.
As you get started with your post-college life, remember that you could benefit from the help of a financial planner to set a budget, begin to save for the future and, perhaps most importantly, begin to repay your student loans. Starting to plan early means having the money later to buy a home, raise a family and eventually retire.