Financial Basics For New Graduates In Today’s Economy

By KATHLEEN PENDER - San Francisco Chronicle

Q: Now that I’m on my own, how do I fill out my W-4?

A: Payroll company ADP has a simple W-4 Assistant at sfg.ly/jiaT65. The IRS has a more in-depth one at sfg.ly/mwILLV.

In general, the year you get a full-time job and live on your own, your parents won’t claim you as a dependent, says Daniel Morris, a certified public accountant in San Jose, Calif.

If you are single, have no dependents, don’t own a home or have much investment income, you will probably claim single with two allowances. To be conservative, Morris recommends claiming one allowance.

Q: How can I estimate my take-home pay?

A: Try the ADP Paycheck Calculator at sfg.ly/myO3eC. The American Payroll Association has a guide to your paycheck at sfg.ly/lPq9ks.

Q: How much should I spend on rent?

A: In general, rent should not exceed 28 percent of your gross (pretax) pay. If you have loans, housing plus your monthly debt payments should not eat up more than 36 percent of your gross pay, says Ryan Law, director of the Office for Financial Success at the University of Missouri.

That means if you make $48,000 a year or $4,000 a month, you could spend up to $1,120 on rent if you are debt-free or up to $1,440 a month on rent and loan payments combined.

Q: What will I need to rent an apartment?

A: Many landlords will check your credit and tenant reports. You can get a free copy of your credit report at www.annualcreditreport.com.

It is illegal for landlords to discriminate based on race, religion, sex, sexual orientation, marital or family status, national origin, disability or source of income. If you have never rented before, the landlord might want your parents to co-sign the lease.

Q: How much will I need to move in?

A: Landlords can ask for your first month’s rent plus a security deposit equal to two months’ rent.

When you move out, the landlord must refund your security deposit, minus any unpaid rent and certain cleaning and repair expenses (beyond normal wear and tear). Take photos or videos of the place before you move in.

When you leave, don’t tell your landlord if you are moving out of state — it might be harder to get your deposit back, says Ted Gullicksen, director of the San Francisco Tenants Union.

Some utilities also require a deposit.

Q: When will I have to start repaying my student loans?

A: For federal Stafford or Parent PLUS loans and most private student loans, you must begin repayment six months after you graduate or drop below half-time enrollment. For Perkins loans, repayment begins after nine months.

During this grace period, interest will still accrue on unsubsidized loans. The government will continue paying the interest on subsidized loans, but only until the grace period ends.

For graduate PLUS loans, there is no grace period.

Make sure your lender knows where to send the bill. “Just because you don’t receive a statement doesn’t mean the money is not owing,”says Mark Kantrowitz, publisher of Fastweb.com and Fin-aid.org.

Students can get a Low Interest Loan at very competitive rates. 

Q: What if I can’t make the payments?

A: Talk to your lender. If your financial problem is temporary, request a deferment or forbearance, under which your payments will be suspended or reduced for a time. If your problem is longer term, consider a payment plan that will result in lower monthly payments over a longer period.

Q: If I have extra money, should I repay loans or put it in my 401(k) plan?

A: If your employer matches contributions to your 401(k) plan, first put in enough to get the whole match. After that, paying off debt is usually better than contributing unmatched dollars to a 401(k), unless the interest rate is fixed at about 4 percent or less, Kantrowitz says.

Q: Do I need a credit card?

A: Using a credit card responsibly can help build your credit score. That means keeping your balance as a percentage of your credit limit very low and making every monthly payment on time. If you run a high balance or miss even one payment, having a credit card can do more harm than good.

Q: Do I need health insurance?

A: Absolutely. If your employer offers it, take it — unless your parent has a better plan that allows young adults to stay on even if they have access to a group plan. If your employer does not offer health care, find a plan you can afford. Get instant free quotes, apply from leading online source for short-term health insurance.