I remember the moment I made the financial transition from college student to independent adult.
It was when my father took my credit card — the plastic he had supported as a co-signer through four years of college — and used sharp scissors to cut it into pieces in front of me and one of my friends.
The big event occurred shortly before I left home to start my first job. It served notice that the days of counting on the bank of Mom and Dad were over.
Having just watched child No. 3 collect his college diploma, I now fully appreciate how my father must have felt when he cut the financial tie with me. Indeed, my wallet already feels a bit heavier now that I no longer have to shell out cash for college.
If you have a college student graduating this spring, perhaps you’ve had a conversation about the importance of getting off on the right foot financially. But regardless of their degree, many students are ill equipped to handle the money matters that come with independent living.
Here are steps to help your new graduate navigate the transition financially:
▪ Build a budget. Whether you’re starting the job search, drawing a six-figure starting salary or somewhere in between, how will you know where you stand financially at any given moment?
You can budget the old-fashioned way using pencil and paper to track money coming in as well as money going out. Or take advantage of personal finance websites or smartphone applications from such sources as The Mint.com, LearnVest and Expense Tracker.
▪ Pay attention to technology costs. Do you really need 500 cable channels, super-high-speed Internet and a smartphone megadata plan? After the apartment rent, technology can be the biggest expense item in your budget. Weigh what you want with what you can afford. About those low-cost promotional offers: Before signing up, read the fine print about all the taxes and add-on fees that can tack another digit onto your bill.
▪ Pick a suitable credit card. If you’re applying for plastic, avoid those with annual fees. Compare approval requirements, monthly charges, overdraft protection plans and rewards programs. Several websites, including LowCards.com and CardHub.com, make it easy to compare hundreds of credit card offers. This is also the time to check your credit history, even if it’s minimal, to make sure the record is accurate and your identity hasn’t been compromised by a hacker.
▪ Start paying off student loans. The average amount of debt that students are carrying at graduation is about $29,000. Dealing with that much can be scary, but get cracking.
If you can afford it, pay more than the bare minimum. If money is tight, plenty of flexible repayment options are available on both government and private loans. For example, the federal government offers a pay-as-you-earn program for graduates dealing with financial hardship, and balances may even be forgiven after 20 years for borrowers with solid on-time payment records.
▪ Get in the game. That means taking advantage of employer benefits, such as 401(k) retirement plans, health insurance, flexible medical spending accounts, even checking the box for at least minimum disability insurance coverage.
▪ Don’t cut all the ties. This last point applies to mother, father and grad.
Is it more financially advantageous to stay on your parents’ cellphone plan? Compare the family discounts versus going it alone.
And parents with kids who have moved back home should establish some ground rules. Will they be paying rent? Picking up some groceries? Paying for their own car insurance? Get the specifics in writing to avoid any misunderstandings.