Investment ideas for recent graduates
The spring and summer months bring a lot of excitement for high school and college graduates.
Not only do they look forward to graduation day itself, but there are also plenty of celebrations, parties and highly anticipated gifts. With money ranking as the most popular graduation gift in the nation, as reported by Hallmark, some graduates will experience a windfall that could net them hundreds or even thousands of dollars.
While itís OK for graduates to spend some of that cash on themselves, itís equally important they are disciplined with most of their money. Graduates should look ahead and think about their future needs, which may include college expenses, a down payment on a first house and establishing an emergency savings fund.
If you are the parent of a high school graduate who plans to attend college, you will probably want to encourage your child to put some of his or her cash toward education expenses. The College Board states the average cost of just one year at a four-year public institution rose to an average of $8,655 for the 2011-12 academic year, an increase of 5 percent, or about $400, above the previous year.
With college expenses continuing to increase each year, many college graduates are finding themselves in serious debt once they are out of school. If they took out loans during their college years or used credit cards to finance some of the expenses, itís time to consider how they are going to pay the money back. A good way to start is by looking at the debt and prioritizing what should be paid first based on the interest rates involved.
Graduates can also consider taking their monetary gifts and setting up a Roth IRA, which can be done by anyone who receives taxable compensation through an employer. Since contributions to the plan are made with after-tax dollars, all assets in the account grow tax-free. In addition, distributions can be made at any time and for any reason without being taxed or penalized. For 2014, individuals can contribute up to $5,500 to a Roth IRA with an additional $1,000 if over the age of 50 by the end of the year.
Another option for graduates is building up a savings account or establishing an account if they havenít already done so. A savings account provides easy access to cash, and could serve as an emergency fund later on. If the graduate doesnít need the money immediately, a certificate of deposit (CD) with a six-month or one-year maturity date is another way to help their money grow.
Graduation is an exciting time in a young adultís life. What the graduate does now with his or her cash windfall could provide a solid footing for the future.