Financial Advice in the News

Posted on May 18, 2005 13 Comments

Solid advice from the Chicago Tribune’s Your Money team this weekend.

Baltimore columnist Eileen Ambrose in this week’s Chicago Tribune. Read it here:
http://www.chicagotribune.com/business/yourmoney/sns-yourmoney-0515ambrose,0,5384742.story

From the article:

“Here are some financial steps to put new grads on a sound financial path:

— Emergency fund. The Consumer Federation of America recently surveyed women ages 18 and up on their financial worries. The group expected to find the highest anxiety among older women facing rising health-care costs and living on a fixed income, said Stephen Brobeck, CFA’s executive director.

Instead, those most worried were age 25 to 34, with 18- to 24-year olds not that far behind. They fretted about being able to handle a major expense that cropped up unexpectedly.

For peace of mind, young adults need to squirrel away a little each paycheck into an account until they eventually accrue six months’ worth of living expenses. That money can be tapped for emergencies, rather than credit cards.

— Pay off plastic. Many leave college with hefty balances on credit cards, so paying off that high-priced debt should be a top priority.

On paper, the smartest way to do this is to first pay off the credit card that carries the highest interest rate. But that’s not always the most successful method, said Mark LaSpisa, a financial planner in South Barrington, Ill.

He suggests paying off the card with the lowest balance first, because it will be easier to see progress and increases the chance that you will stick with paying off the cards. Also, once a card is paid off, money is freed up to apply to the remaining debt, he said.

— Credit check. If you have credit cards, check your credit report to see what creditors are saying about you. It’s not just lenders that pull reports to decide whether you are credit worthy and responsible.

“When they go for a job, their employer will pull their credit record. If they go to get an apartment, the landlord will pull their credit report,” Stenstrom said.

Under federal law, consumers will be eligible for a free credit report annually.

— Establish credit. Some students managed to ignore credit card pitches in college, but now will need to build a credit history.

One easy way to do that is open a credit card account, said Ned Kissinger, a financial planner in Hunt Valley, Md., who graduated from college six years ago.

Choose a low credit limit, $250 or $500, that can be easily paid off each month, he said. By using the card and making on-time payments each month, you can establish a good track record.

— Weigh benefits. Employment prospects for new grads are better now than in the past three years, so young job seekers may have the luxury of being able to compare offers. Salary is important, but don’t overlook benefits, which can amount to a lot of money if workers had to pay for perks out of their own pocket.

One of the most important benefits is health care, especially for new graduates who soon may be dropped from a parent’s policy.

If disability insurance is an option, sign up, Stenstrom advises. “We think we’re all invincible until we hit 50,” but most people are more likely to develop a disability before age 40 than die, she said.

— Save for retirement. Sure, retirement is a long way off and young workers may not have much money, but they have time working in their favor. Saving small sums today means not having to save huge amounts later to catch up.

Many employers offer 401(k)s or similar type of savings plans. Workers contribute a percentage of their paycheck and don’t pay any income taxes on that money until they later withdraw it. Employers often will match all or part of workers’ contributions.

Young workers should contribute at least enough to get the full employer match, which is essentially “a tax-deferred raise,” said Eric Brotman, a financial planner in Timonium, Md. As wages go up, workers can increase the percentage of earnings they contribute, he said.”

# # #
Lorene Yue writes how closing a credit card can affect your credit score in her “Reality Check” column:

http://www.chicagotribune.com/business/yourmoney/sns-yourmoney-0515reality,0,399422.story

# # #
Carolyn Bidga reminds us to consolidate loans before rates go up this summer:

http://www.chicagotribune.com/business/yourmoney/sns-yourmoney-0515gettingstarted,0,814594.story

Read about my consolidation experience here:
http://budgetingbabe.blogspot.com/2005/02/student-loan-consolidation.html

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