Gail MarksJarvis: After Graduation, Target Your Financial Education

By Gail MarksJarvis
Chicago Tribune.

Recent college graduates are holding newly minted diplomas that say they mastered college. Now it’s time for grads to master their financial life.

Getting off to a good start is like taking the prerequisite courses in high school that made it possible to get through tough college courses. Without the prerequisites, college tends to be a struggle; with them you struggle less.

Likewise, getting early life finances wrong leaves you struggling later … often falling deeper behind as time goes on.

So a few rules of thumb will help. You might not like the limits, but if you start adopting them immediately, the controls on your spending will give you more money for the later phases of life.

There will be less need to turn to credit cards in desperation and more peace of mind if you want to take a vacation or indulge yourself from time to time.

Spending on student loans. The rule of thumb is that your monthly student loan payments shouldn’t exceed 8 percent of your monthly pay from your job.

Unfortunately, no one probably told you that before you took out the loans. College financial aid offices do students a disservice when they wait until just before graduation to tell students what their loan obligations are going to cost them. This discussion should take place in actual dollars and cents before students head for the road to too much debt.

But if you are just learning now that your student loan monthly payments are going to be too high for your income, you may have options. The federal government allows graduates to keep their federal student loan payments manageable.

If your first job pays so little that you can’t afford the loan payments, the government will adjust your payments lower based on a formula you can examine here: finaid.org/calculators/ibr10.phtml. It’s called “income-based repayment.”

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