Congratulations! Your son, daughter or grandchild has earned a college degree and is ready to join the workforce.But there’s one last “quiz” for you to administer before your child leaves the nest. The decisions your child makes today about spending and saving can mean the difference between struggling for the rest of his or her life and building a solid financial future.

Here are seven questions to ask your child once the graduation parties end and the reality of becoming a full-fledged adult settles in.

1. Do You Plan to Continue Living at Home?

Even if they already have a full-time job, many recent college graduates choose to live with their parents or grandparents to save money. However, the popularity of this option has declined since it reached 52% during the peak of the pandemic. The percentage of young adults (age 18 to 29) living at home is now down to 46.5%, according to a recent analysis of monthly data from the Current Population Survey (a publication of the U.S. Census Bureau).

Financial dependence is rarely the sole reason for a “boomeranging” home. For example, young people are generally waiting longer to get married compared to previous generations. Without a fiancé or spouse to encourage independent living arrangements, many graduates return home until they finally tie the knot.

In addition, some empty nesters miss their children and ask them to return, at least temporarily, to help with companionship, medical care and security, financial obligations, and day-to-day chores. Parents often mutually benefit from living with their adult children.

Could this option work for you? It’s not right for every family. Before you move back into your childhood bedroom, you’ll need to have an honest family discussion about rules and expectations regarding chores and financial responsibilities.

2. Should You Rent Your Own Place?

If living with relatives isn’t in the cards, you’ll need to find a place to call home. Depending on where you want to live and how much you earn, you probably can’t move into your dream home right after graduation. Your location of choice is tied to many variables — job, family and personal preferences.

To avoid overspending, be realistic about how much you can afford. As a rule of thumb, roughly one-third of your net monthly take-home pay should be used to finance the place you live. If your starting income is modest, you’ll likely pay a higher percentage for housing.

If you decide to rent, always read the entire lease before signing on the dotted line. Find out such details as how long the lease lasts, whether it includes utilities and if there are any fees for terminating the lease early.

If you can find a roommate, you’ll have extra money for other living expenses, such as furniture, utility bills and internet access. Also, don’t forget renter’s insurance to cover your personal belongings in the event of a theft, fire, flood or other disaster.

If you’ve already saved up money for a down payment, consider buying a condo, townhouse or single-family home. Interest rates are near historic lows — although they’re starting to gradually increase. The sooner you purchase, the quicker you start building equity and claiming tax benefits that come with owning a home.

3. How Much Should You Save Each Month?

No one wants to live paycheck to paycheck. Doing so can lead to significant stress if you lose your job, become disabled or incur a major expense (like a medical bill or car repair). It’s smart to set aside a predetermined amount from each paycheck that goes directly into savings. (Note: This amount should be separate from your retirement savings.)

Maintaining a savings account that’s separate from your checking account will help prevent you from thinking that this amount is part of your disposable income. As a rule of thumb, you should try to build a “rainy day fund” that equals three to six months of net monthly take-home pay. When the unexpected strikes, you’ll be glad you saved.

4. When Should You Begin Saving for Retirement?

It may seem premature to think about retirement when you start your first real job. But you can amass a large nest egg by saving small amounts when you’re young, because your contributions have time to compound. Plus, any money you put into tax-deferred accounts generally lowers your taxes in the year you contribute. (Income taxes will be due when you eventually withdraw funds from these accounts, however.)

If your employer offers a retirement plan, such as a 401(k) plan, sign up as soon as possible. Also, find out if your employer makes “matching contributions.” This means the employer adds in a percentage, say 25% or 50%, for every dollar you contribute. Besides employer-provided plans, there are many other retirement planning tools. For example, Roth and traditional IRAs may be beneficial, depending on your personal situation.

As a bonus, you may be able to borrow from a 401(k) account or take money from an IRA without paying an early withdrawal penalty, for several reasons, including the purchase of a first home.

5. Do You Need to Buy (or Finance) a Car?

After putting money toward living expenses, savings and retirement, new graduates need to budget for another essential: transportation. Again, you might not be able to afford your dream car right away. Moreover, a car may not be a necessity, especially if you live and work in a city with reliable public transportation.

If you decide to buy a car, look for a car loan with the lowest possible interest rate by:

  • Checking your credit. Consider a co-signer if your credit rating isn’t very good or if you haven’t established any credit rating yet.
  • Shopping around for interest rates at your bank, credit union and various car dealerships. Try to get quotes from at least three different sources.

If you finance a vehicle through the dealership (because it’s convenient) and later find a lower rate elsewhere, you can pay off the original loan with the lower rate loan. Just make sure the original loan doesn’t include any prepayment penalties.

6. What Types of Insurance Do You Need?

Graduation is a good time to make critical decisions about auto, health and life insurance coverage. For many young adults, the insurance options can be overwhelming, however.

Most new graduates get their health insurance coverage through an employer. If you’re unemployed or your employer doesn’t provide coverage, you may be allowed to stay on your parents’ policy for a few more years (until you turn 26).

If you can’t get coverage through a parent’s health insurance provider, you’ll need to consider alternative coverage options, such as:

  • Certain government sponsored programs (such as Medicare, Medicaid, and the Children’s Health Insurance Program),
  • Plans obtained on the individual market,
  • Certain grandfathered group health plans, and
  • Certain other coverage specified by the U.S. Department of Health and Human Services in coordination with the IRS.

Also consider obtaining life insurance. If you sign up when you’re young and healthy, the rates are generally less expensive. Depending on your needs later in life, as well as health issues that can creep up over time, the cost could rise significantly in the future.

Other insurance products to consider include renters’ (or homeowners’) insurance. In addition, most states require drivers to insure their vehicles to cover any potential property damage and bodily harm that may result from an accident. Plus, if you finance or lease your car, the lender probably requires comprehensive coverage and collision coverage.

The cost of auto insurance can vary significantly, depending on the age of the vehicle, your age and driving record, geographic location, price of the vehicle, and the terms of coverage you select. You might want to consider contacting your insurance provider before you purchase a vehicle to factor the cost of insurance into your decision.

7. How Can Discretionary Spending Help You Build Credit?

Any money that’s left over from your paycheck is available for discretionary items, such as vacations, dining out, pets, clothing and personal pampering. Credit cards can be a convenient way to pay for discretionary items. Plus, they often accrue rewards points that can be redeemed in the future.

If you don’t already have a credit card, sign up for one to help build credit. But resist the temptation to spend beyond your means. Always try to pay off your credit cards in full each month. Otherwise, you’ll likely incur high interest rates on any unpaid balances.

Interest-free financing offers (for, say, a mattress or an appliance) can be another way to save money and build credit, but you must pay off the balance in full before the deal expires — or you’ll incur high interest charges from the original purchase date. Consider setting up automatic payments from your checking account to avoid missed or late payments.

Got Questions?

Financial independence can be daunting for new college graduates. That’s why it’s critical to establish relationships with tax, business and legal advisors. As you enter new stages of life — the purchase of your first home, marriage, the birth of a child and so on — you’ll likely need help from experienced professionals whom you can trust. By initiating these relationships now, you’ll know whom to contact when help is needed.


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