A 5-Step Personal Finance Crash Course for New Grads

I absolutely love my 7-class personal finance course, but I want to share a super short list of Must Dos and Don’ts for recent college grads. Because I know far too many parents have dropped the ball on making sure their beloved young adult is prepared to make smart money decisions. In a recent study released by Fidelity only 20 percent of women said they felt their parents had taught them the financial ropes. And an even lower percentage reported that they picked up money management skills in school.

If you’re a parent who overlooked this important education, here’s a streamlined action plan to share with your young adult:

1. Don’t Fall Behind on Student Loan Repayment. After leaving school, you have a six-month grace period before the first payment is due on federal loans. Don’t blow past that. Falling behind on student loan debt will haunt you for years.

2. Use Your Smartphone to Ace Your Finances. Alerts are how you avoid late fees and bank overdrafts. For every ongoing bill, set up an alert reminder at least five days before it is due. Set up alerts to tell you when your bank balance is low.

3. Start an Emergency Fund Today. Not tomorrow. Not next week. Today. This is to be a separate savings account. Money in your checking account is not emergency money. If you already have a checking account, you are just a few clicks away from having a savings account. When you set it up, sign up for an automatic monthly (or more often) transfer from your checking account to your emergency savings fund. How much? What feels right? Once you settle on that number, I challenge you to increase it by 10 percent. Because I know you can do this. And the faster your emergency fund grows, the faster you are going to feel powerful and in control of your finances.

4. Aim to Invest $5,500 in a Roth IRA. If you have yet to land a job with a workplace retirement plan—or there is a wait period until you are eligible, saving in a Roth IRA is the best investment decision you will ever make. The maximum amount you can invest this year is $5,500. (If you have a workplace plan, and it offers a match, I recommend you only contribute enough to get the max match, and then save in a Roth IRA on your own. One caveat: if your workplace plan offers a Roth 401(k), you can do all your retirement saving in that account; no need to use a Roth IRA.)

5. Spend Below Your Means, but Within Your Needs. Make that your money mantra and you are going to be in great shape. Living below your means allows you to pay your credit card bill in full each month. It gives you the flexibility to save beyond your emergency fund. It ultimately puts you on the path to financial freedom.