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Federal Employees News Digest : July 1, 2013
M any federal employees have sons and daughters who recently graduated from college. For these graduates, the good news is that the national economy is in better shape than it was in recent years, and that the overall unemployment rate for college graduates is roughly half that of the total U.S. population, boding well for these graduates' job prospects. But with that first job, college graduates are embarking on a new educational experience, namely the world of "real" finances. The following are some suggestions for these graduates that may help them get control of their finances: Get in the habit of saving. New employees, who are most probably earning the most money they have ever earned, will hopefully spend less than they earn. They should ideally automatically save for their current needs and for their retirement. A part of their paycheck should be deposited into a bank or credit union savings account in order to build up a liquidity fund equal to six months of their average monthly expenses. For their retirement, now that they have earned income, they are eligible to contribute to an IRA. During 2013, they can contribute as much as $5,500 to a tradi- tional IRA and/or Roth IRA. Don't skimp on health insurance. Under the Affordable Care Act of 2010, young adults can stay on a parent's health insurance plan until they are age 26. After they are hired, it could take as long as three months to be eligible to join their employer's group health insurance plan. A parent's FEHB plan (or the other parent's group health plan) or a short-term health plan can fill any gap in health insurance coverage. Whatever a young adult does, they should not skimp on or skip get- ting health insurance. Even young and healthy individuals need health insurance because a car accident or unforeseen illness can result in thousands of dollars in medical bills. Pay off or reduce student loan debt. An estimated two-thirds of 2013 college graduates will leave college with student loan debt, and the average borrower balance is $27,000. Paying off this debt -- even if it means cutting back other discretionary spending -- will save the bor- rower in interest expenses and result in more flexibility when the bor- rower reaches their late 20s and beyond. Consider paying back $30,000 in federal student loans at 6.8 percent over a 10-year period. The total monthly payment is $345, and interest will add up to about $11,425 over the loan's life. Paying just $30 a month extra will shorten the repayment period to nine years and save the bor- rower $1,347 in interest expense over the life of the loan. Paying a total of $500 a month -- perhaps what a new car loan payment will be -- will pay off the loans in six years and save the borrower $4,700 in interest expense over the life of the loan. How do young adults starting their first job generate a sufficient cash flow to balance all these needs? Some suggestions are: (1) buy a cheaper used car rather than a new one; (2) get a roommate rather than living alone; and (3) take lunch to work rather than eating lunch out. Check credit reports. New employees should not be surprised if their employers care more about their credit records than their grades. This is because a credit record shows how well an individual manages obligations. Any graduating col- lege student today is therefore encouraged to check their three reports -- Equifax, Experian and TransUnion -- which they can obtain free of charge by going to the website www.annualcredit.com. One free credit report a year may be requested from each of the credit reporting agen- cies. Individuals should check credit reports to verify the information on the report is correct, and to make sure they have not been the victim of identity theft. Build a credit record with credit cards. Those young adults who did not own a credit card in college or who did not use cards they owned may not have much of a credit record. In that case, a landlord may not lease a young adult an apartment without a parent co-signing on the lease. To build a credit record, one should use one or two credit cards and pay the balance due each month on time. With a lack of a credit record, a new employee may find it difficult to obtain a bank credit card. In that case, the employee may have to get a store credit card. A store credit card may be easier to get approved for; the card should be used and the balance due paid on time each month. Avoid unnecessary bank fees. Young adults should beware of the unnecessary and high bank fees and high minimum checking account balances associated with some banks. For example, there are charges for using out-of-network ATMs and for bank overdrafts. Paying all bank credit card bills and loans on time to avoid late fees and interest is important. Federal and local credit unions are known for their low minimum fees and minimum checking account balances. Edward A. Zurndorfer is a Certified Financial Planner and Enrolled Agent in Silver Spring, MD. He is also a registered representative with FSC Securities Corporation, branch address: 833 Bromley St. - Suite A, Silver Spring, MD 20902. Phone: (301) 681-1652. Securities offered through FSC Securities Corporation,member FINRA/SIPC. EZ Accounting and Financial Services and FSC are independent companies. Informed Investor Welcoming college graduates to the real (financial) world July 1, 2013 Vol. 62, No. 48 7 Visit us on the Internet at www.FederalDaily.com
June 24, 2013
July 8, 2013