Essential Insurance for Life after College

Health or Medical Insurance

If you’ve secured full-time employment with a company after graduating college you’ll have some different medical insurance options to choose from your company plan.  Most employers will allow you to choose insurance day one of employment.  Let me just say you would be foolish to not have any health insurance.  While you might not experience any major health issues, everyone has to see a physician from time to time for illnesses.  More than likely, you’re not married so insurance shouldn’t cost much.  I think it’s wise to choose the most expensive health insurance you can afford to reduce risk and make sure you’re well covered.  If you have a serious illness you’ll want to avoid accumulating debt to pay for treatment.

Car Insurance

Car insurance is required by law if you own a car in most states.  You have to at least have liability insurance that will cover expenses if the accident is your fault.  You may not have a lot of money out of school, so choosing insurance with a $500 deductible is fine.  This means you’ll pay $500 before the insurance agency will start paying any claims.  You can get a lower deductible if you can afford it, but a higher deductible and avoiding speeding is a good way to keep this cost down.  Also, if you have a clean driving record (no accidents and speeding tickets), your premiums will be cheaper.

Renter’s Insurance

Looking back, I’m not quite sure why I never took out a renter’s insurance policy.  Although, I wouldn’t have had much to claim for a theft, it still would have been wise to cover my assets.    Make a list of all your possessions and estimate the value of them to determine how much renter’s insurance you need.  Also, make sure you have an inventory of your items handy.  If you experience a theft or loss the insurance company will want to review the inventory (proof of the loss) before paying your claim.  You might also think about shooting a video of your possessions.

Disability Insurance

It’s always a good idea to have some disability insurance.  Many people get disabled and lose their primary source of income when they can’t work.  The expenses don’t go away, but the income does.  That’s why it’s important to lessen this risk with disability insurance.  Many employers will offer short-term and long-term disability, but the long-term isn’t typically enough to replace your income.   People are often surprised when their disability payments don’t equate to their monthly paycheck, so you may choose to buy some additional insurance outside of your employer’s plan.  Just keep in mind, most graduates don’t have a family to support after school, so be mindful when determining how much you need.

Other Insurance Tips

• Shop around.  Get at least 3 quotes for each type of insurance you’re not purchasing through your employer.
• Try to get your insurance with the same company.  Most companies will offer discounts for insuring auto and home (or renter’s insurance) together.
• Don’t hesitate to ask insurance companies what discounts are available.  Also, some employers can get discounts with insurance companies, so check with your HR department to determine what relationships are in place.
• Check with your insurance agent before purchasing a car.  Some makes and models are more expensive to cover.
• As much as you may not like it your credit is important when saving money on insurance.  Make sure you pay your bills on-time.
• Do you need life insurance?  I would skip it for now unless you have a family.  When you get married, look into purchasing a term life insurance policy.  Avoid whole life insurance, but that’s a subject of another post.

What do you think about these life after college insurance tips?

Personally, I was far from having a good understanding of personal money management, the importance of savings and avoiding debt right after college.  Although I made some financial mistakes, I can share some tips today in the hope you won’t do the same.

10 Tips for Your Financial Life After College

Don’t finance a new car

Most graduates are excited to get a new job and decent salary after all their hard work in school.  But many of them look around and see the new cars their friends have just purchased and immediately feel they deserve the same.  You don’t unless you can pay cash.  You may be driving the car you had in college (if you were lucky to have one) for a while, but avoid financing a new car.  Financing a new car will put you in debt for more than $300 per month and you’ll live with that debt anywhere from 4-6 years.  It’s not worth it.  Rather, begin paying yourself a car payment and save the money until you can buy a good and reliable used car.

Don’t spend more on a credit card than you can pay off each month

Perhaps you already have a credit card, or are thinking of getting one.  A credit card can be good to use in certain situations.  But, make sure you don’t carry-over a balance at the end of each month.  While this may not make much of a difference at first, a hundred dollar balance will eventually turn into several hundred and then a thousand or more.  It happens to many people because using a credit card is so easy to do.  Only spend when you know you have the money for it.

Get on a plan to get out of debt

Speaking of credit cards, did you have one in college?  Chances are you may have some credit card debt and student loans to pay off.  Make sure you have a plan to start paying extra to get out debt as soon as possible.  Once you’re debt free, you can begin to save more of your income for future purchases such as a car and home.

Live on a budget

Now that you’re earning money, you have to learn to manage money.  The best way to do that is by living on a spending plan, or budget each month.  Create a budget and track your expenses immediately. Personally, I like using a hybrid of the envelope budgeting system where you pay cash for areas such as entertainment and clothing, but use credit or debit for other areas.

Don’t be too picky about your first job

Hey graduate, did you work hard in school and make good grades?  Congratulations if you did, but don’t be too confident and think you deserve everything the professional world has to offer the day after graduation.  Rather, focus on getting experience before pay.  Chances are your expenses will be minimal after school and you can work for less, but learn a lot about yourself and your future profession.  All this being said, don’t jump at the first opportunity out of school either.  Make sure the position is the right fit for you as well as the company.

Read the Total Money Makeover by Dave Ramsey

I know there are a lot of good personal finance books out there, but the one I probably enjoyed the most that got me even more motivated to get out of debt was Dave Ramsey’s Total Money Makeover.  It’s filled with great practical tips and will help you set your priorities straight.

Set aside a portion to give each month

Money is a powerful thing and we can’t control that power on our own.  If you’re a Christian, I recommend giving from your first pay each month to release the financial bondage money can have on you.  If you learn to give money first you can truly appreciate money as a resource that only comes from God which is your job to manage.

Rent a modest apartment

Are you starting to understand the theme here in this article?  Live modestly and get your finances heading in the right direction before you make a move to a nicer car or buy a home.  Try to find a safe,  but easily affordable apartment you can call home for the first few years.  Earn, give, save and get out of debt in these years and then consider buying a home when it’s affordable and you can make a 20% down payment.

Create a 5 year financial plan

On top of these tips you’ll want to set some goals for yourself.  I would advise doing this after you’ve been out of school and working for a few months.  Setting a five year financial plan can be encouraging because you have some real goals you can accomplish in a short amount of time.  It will also help drive your spending behaviour each month.

Set some money aside in a savings account

As a part of your monthly spending plan you’ll want to carve out at least 5% for savings until you have $1000 put back.  Then, stop saving and pay off any credit cards using that 5% plus any extra you can afford to put on them.  Once completed, you should build up a full month’s of living expenses in savings and then start tackling other forms of debt.  You can get some of the best yields available for your savings by using an online savings account.

Finally, put all these tips together in one big plan by following the Crown Money Map.  The Money Map has been a blessing for many and if you start following it in your life right after college you’ll be miles ahead of so many who have traveled these roads before you.

What do you think about these 10 tips for your financial life after college?

Recently, I heard Dave Ramsey talk about dealing with financial decisions after a close loved one passes away.  He tells people to avoid major financial decisions such as selling a house, moving, etc. for at least six months.  This amount of time allows one a chance to mourn, avoid unnecessary stress and get their thinking straight. You might say the same amount of time could be helpful for college graduates.

A college graduate has just gone through approximately 22 years (more if you decided to go to graduate school) of schooling with much of that time being supported by mom and dad.  It seems absurd to turn them loose in the real world to juggle major money decisions which can be stressful on top of learning their first job.  Why not let them ease into it?

If you’re a college graduate (or a mom and dad coaching a graduate) consider the below list of dos and don’ts after the diploma is in-hand.

Personal finance don’ts for the college graduate

Don’t make any major purchases

Avoid the temptation to go out and buy a new car as many of your friends are doing.  You probably already have a car which has provided you transportation through college.  Continue to drive your existing car unless you’re stuck with a car payment beyond your ability to pay, or the wheels are about to fall off.

I recently had a friend graduate with an advanced medical degree.  Although, his situation is different than a newly college graduate, he is avoiding buying a house.  Instead he has decided to rent until he’s been working for a while and has time to think about his next steps.  I would recommend resisting the temptation for a least a year in order to get settled into your first job even if you’re blessed with enough money.

Don’t open a credit card account

Opening a credit card account is tempting to use to fund all those needs you may feel like you have once you have your first apartment and start a job.  If you’re paying with cash, the real needs float to the surface and the other items find their way down the list and don’t seem quite as urgent when reviewed later.

Don’t invest

Yes, you may have some extra money, but don’t go out a buy shares of a mutual fund you found while searching the internet or talking to your buddy back home.  See the do section for getting your retirement started.

Don’t get a dog

You might laugh, but I got a dog in graduate school and really didn’t have a good way to take care of him; they require a lot of work.  I was trying to make friends with all kinds of neighbors who could watch him while I took business trips out town.  Save the dog when you have a house, are stable and maybe have some kids to chase him around in the backyard!

Personal finance do’s for the college graduate

Do save some emergency cash

As with most financial counselors you’ll find they tell you to start saving $1000 towards emergencies.  Open a money market account and start saving at least 5% of your take home pay into the account until you’ve reached this savings goal.  Trust me, you’ll need it.

Do create a budget

Congratulations!  You’ve finished college and now you’re a CFO (of your finances).  Start acting like it and manage your spending wisely by setting up a good budget.  It’ll help you save that $1000 before you’ve spent it all at Banana Republic.

Do create a debt plan

If you’re like the majority of American college graduates, you have some debt (frown).  Part of that budget is going to be allocated to paying down that debt (and it’s not just the minimum payment).  Learn to live debt free and start paying off credit cards, car payments and student loans ASAP.

Do cut up your credit cards

If you have multiple accounts, cut up every card except the lowest interest account.   You will use this card only as a convenience card and plan to pay it off every month.  If you can’t pay it off, or have a balance you can’t pay off with your first month’s income, don’t use it.  Put it in your freezer and freeze all spending until the balance can be controlled each month.

Do invest up to the total amount your employer will match for your retirement plan

Some employers will let you begin investing in a 401K immediately.  Others will require you to wait a few months.  Once you have this benefit, sign up and invest up to the employer match.

Don’t invest more until..

you’ve worked 6 months, have $1000 saved for emergencies, have your debt paid off and met with a financial advisor to review your investment options.  If you can get intense with paying off your debt in 1-2 years, you can then max out your retirement.

What are some of the things you did after you graduating college that may have not got you off to a good start in managing wisely?  What are you doing as a college graduate to manage your money wisely?