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A Beginner’s Guide to Finances, Contracts, Taxes & Other Scary Terms

Graduating from college means a lot of things: no more exam stress, a guilt-free early bedtime, and the ever-looming label of “adult” that you get once you’re in the real world. So what does an “adult” need to know? As it turns out, a lot of things. Being a real person is about more than knowing how to make a dinner with your oven instead of your microwave or when to walk away from drama—it’s about scary money stuff, too. These pro tips should help you start navigating the rough (but awesome!) waters of adulthood.

1. Finances

Whether you want to retire one day, or work until you’re 100, there is no denying the fact that you need to plan ahead. The first step to planning ahead is understanding your income and how to
manage it.


In the immortal and all-too-real words of Rachel Green, “Who is FICA and why is he getting all my money?”

FICA stands for the Federal Insurance Contributions Act and is the portion of your wages that contributes to Social Security and Medicare. Social Security provides benefits for retirees, the disabled and people with limited income. Medicare is used to help pay for medical bills for certain people over the age of 65.

What you earn before FICA is known as gross pay, and what you are left crying over after FICA is your net pay.


We hear about them all the time, but what actually is a 401(k)? It’s a retirement plan that’s offered by your employer. Each month, you are able to put in a part of your gross pay salary, and your employer may (hopefully!) match your contribution up to a certain amount. If your employer does offer to match, try and put in the maximum amount so that you get the full benefit of the plan—hey, it’s free money!

Your 401(k) is tax-deferred, meaning it isn’t taxed while it grows, but it will be when you go to make a withdrawal for Spring Break 2052. While there are exceptions, the general rule is that your 401(k) is untouchable until you are at least 59 and a half years old; until then, just keep an eye on it—your money should be working hard and earning you more through stocks and other investments. Don’t worry if you’re not an investment wiz; according to Jon Ten Haagen, a certified financial planner, an employer will typically have an investment company manage your account, distributing your investments throughout several options. You can usually pick and choose from the multiple investment plans your company offers. It’s your account, so you can always have a say in how it’s being invested!

You can also opt for a Roth 401(k), a slightly less common option. Roth 401(k)s are different from Traditional 401(k)s as they take money that has already been taxed, meaning that when you eventually make your withdrawal for that retirement party, you won’t be taxed on it.


Since a 401(k) is sponsored by an employer, you will need to make other arrangements for your money if you leave that company, or if your company doesn’t sponsor a plan. Thankfully, there are other options! You can roll your money over into an individual retirement account (IRA). There are many different kinds of IRAs, but the main types you should know are the Traditional and Roth.

Traditional IRAs are tax-deferred, like a 401(k), so you only pay taxes when you go to withdraw your money after retirement. There are two different types of IRA’s that you should be aware of before setting yours up: a deductible IRA and a nondeductible IRA. Deductible IRAs will save you money immediately, as whatever contributions you put into it each year are taken out of your taxable income. A lower amount of taxable income means lower taxes!

Nondeductible IRAs, on the other hand, do not save you any immediate money, as you contribute to them with after-tax dollars (the money you have left over after paying your taxes). In addition, you stop paying into a nondeductible IRA at 70 and a half years of age (scary thought!) and are required to make regular withdrawals called “required minimum distributions.”

Lisa Signorelli, a certified public accountant, explains that traditional IRAs help grow money faster than other taxable accounts, such as investment and bank accounts. “You don’t have to take some money out each year to pay taxes on the growth,” she says. “Therefore that money saved is earning more money, and your balance grows much quicker!” The more money in your account, the more it earns, so it’s beneficial to keep as much in there as possible.

A Roth IRA is similar to a Roth 401(k), in that it also uses after-tax dollars, meaning there is no tax when you eventually withdraw, and like a traditional IRA your money is able to grow; without the burden of taxes! With a Roth IRA you can continue adding funds indefinitely, and there is no required minimum distribution.

If you are interested in setting up an IRA you can do so at your local bank, with a broker or even by yourself online! When deciding between accounts, Signorelli says there are two major things to consider. First, do you have enough income to ensure that you will be able to keep your money in the account until you can withdraw it without penalty, and second, will you be in a higher or a lower tax bracket when you are able to withdraw? She explains that normally we fall into a lower tax bracket after retirement, so it could be very beneficial to pay taxes when you go to withdraw, as they will be lower than if you pay them beforehand.

FICO score

If you’ve had to apply for a credit card, loan or are renting your own place, you know that there is a thing called a “credit score” that’s kind of like the adult version of a report card. The goal is to keep your FICO score healthy. The score is named after the Fair Isaac Company, a predictive analytics company. A credit score is actually made up of three separate scores: Experian, TransUnion and Equifax, and these are what banks, credit companies, lenders and landlords look at before giving you a loan. Your credit score is essentially a representation of how risky you are as a borrower. If you have a low score, these lenders will think twice before loaning you money, and if they do, will tack on higher interest rates as collateral in case you can’t make your payments. If, on the other hand, you have a healthy, high score, you are in a much better bargaining position!

Jeff Ostroff of Car Buying Tips stresses the vital importance of a credit score when it comes to getting a loan, such as when you’re looking for your first car. “One of the biggest components of your credit score is your length of credit history. This is why it’s important to establish responsible credit early.” The way to good credit, he says, is to pay off your card every month, and not to carry anything over, as “lenders don’t like to see balances on your credit portfolio.” If your credit score is already less than ideal, he advises you to avoid “credit doctors” (the people in those TV commercials with the annoying jingles!) and work directly with your creditors to pay off your debts; this way, it’s actually more likely that they may remove any black marks from your score. Thankfully those bad marks will come off after 7 years; but that’s a long time. “There is no easy way to repair your credit once you have ruined it, unless you have 7 years to wait. Being proactive is the best course of action,” he says.

Signorelli adds that the healthier your credit score is, the higher your chance is at securing a better interest rate on loans.

Bank accounts

When it comes to the world of banking, you have more options than just your basics. We’re all experts when it comes to our checking and savings accounts—we can transfer money in between the two faster than we make a Tinder swipe. But what about a certificate of deposit (CD), brokerage account and a money market account?

A CD is a longer-term way to save your cash; you can face a penalty for withdrawing money too early, forcing you to keep the money where it is. Often times a CD will have a higher interest rate than a savings account, but not by much, unfortunately. A brokerage account is a way to actively invest your money without using your 401(k), and you can opt to make the investing decisions yourself or have a broker make them for you. Finally, a money market account is a safe, slow way to grow your cash over time, as it is Federal Deposit Insurance Corporation (FDIC)-insured and has a higher interest rate than your basic savings account. Usually both CD’s and money market accounts can be set up at your local bank; some will even offer brokerage accounts as well. When opening an account, Signorelli advises to consider how long you can invest your capital for, what your short term money needs are (for example, are you prepared to sell the account quickly to liquidate it?) and how much risk you are prepared to take in your investments.


These three letters are always floating around credit card commercials, but do you know what they mean? They stand for annual percentage rate, and that is the interest rate you have agreed to pay to your credit lender. For example: if you don’t manage to pay off your credit card bill by the end of the month, you are charged interest on the remaining balance; that interest is the APR. When looking for a lender or a new credit card company, ensure you have thoroughly read all the fine print and you’re completely sure you are actually getting the right APR. Often, companies will hide a limited time offer in their fine print, and after one month you will be left with immense interest rates regardless of your credit score!

2. Leases and contracts

At some point the signing of a little piece of paper will legally bind you to something be it a lease on a house, a loan or a car. These contracts can be complicated, so make sure you ask questions or consult a professional before signing anything you’re unsure of, and always, always read the fine print!

Lease on an apartment

Niccole Schreck, a Rental Experience Expert from Rent.com advises you to always have a full apartment inspection before you move in.“It’s crucial that any existing issues or damage is noted within your rental lease before you sign,” she says. Another way to protect yourself from pre-existing damage is to take time-stamped photos, says Schreck, as “there’s a direct connection between the shape of your apartment when you choose to leave and getting your deposit back when you move out.”

Protecting yourself and your apartment doesn’t stop at the contract, though. Schreck recommends getting renters’ insurance to protect your belongings for the duration of your lease. “Renters’ insurance is an inexpensive and important part of protecting your belongings,” as the building’s own insurance won’t protect you individually, or your possessions. You can find basic coverage from your normal insurance company, sometimes for as little as $15 (or even less, if you are bundling with car insurance)! Be careful though, most renters’ insurance policies will not cover flood damage, which Schreck says must be purchased separately.

Often when you go to sign a lease, there is a section at the bottom for a guarantor or a co-signer. Who is this person, and why are they on your contract? They are a safety net for the landlord, and will be legally responsible to pay any fees if you cannot.

In every lease there are things you should be aware of, such as the length of lease, penalties for early termination, when you need to notify the building manager of a move-out date, pet policy and deposit fees. Each of these things will change depending on your unique contract, but you should know to look for them and understand them before you sign!

Lease on a car

When you go to sign on a lease on your first car, Ostroff advises you haggle the selling price of the car down. “Never haggle by monthly payments but rather,” he says, “haggle by the selling price of the car.” The reason behind this is that lenders use the manufacturer’s suggested retail price (MSRP) to determine the cost of your lease; the lower the MSRP number is, the lower your payments will be. The breaking of a lease can result in hefty fines and other undesirable consequences, and going over the alloted miles during the lease term can cost you a lot, so always make sure you know the terms of the contract and can keep them.

Independent contractor vs. employee

It turns out that not all jobs are created equally! An employer can hire you as an employee or as an independent contractor. Independent contractors tend to cost less because they are not entitled to benefits the same way employees are, explains Signorelli. In addition to paying a salary, most employers will also offer things like insurance, medical coverage and overtime pay—all of which adds up! When a company hires an independent contractor they essentially act as a consultant. In addition to not receiving the same benefits, independent contractors are also taxed differently. Their taxes will not come out of their pay, like those of an employee, so they are responsible for paying their own quarterly, rather than once a year—more on this below!

3.  Taxes

Tax season is notorious for being stressful—but it doesn’t have to be. Thankfully, there are handy programs from sites like TaxSlayer.com or TurboTax.com to walk you through every step, but it’s helpful to know the basics before you get started.

Filing Taxes

One of the most important things to do when filing your taxes is to file them on time. If you’re late, you can face penalties and interest, Signorelli warns. Depending on your employment, you will have a certain type of tax form to file: a Form W-2 or a Form 1099-MISC. Both of these forms will be given to you by your employers by January 31st, but you can also find them on the Internal Revenue Service (IRS) website.

A Form W-2 is for employees, and it will show the income you earned throughout the year and what taxes have been withheld, or taken, from your income for Social Security and Medicare. According to TurboTax.Com, the amount withheld is subtracted from your tax bill when you prepare your federal and state returns; that amount determines whether you are entitled to a refund or if you need to make an additional payment.

A Form 1099-MISC reports income for independent contractors, or for any miscellaneous income you received that has not yet been taxed. “There will not be any withholding of tax from that income,” says Signorelli, “so make sure you pay in what you think you will owe during the year. These are called estimated payments.” You can use the Estimated Tax Worksheet on Form 1040-ES to estimate your taxes. You are also expected to file Form 1099’s on any money you have earned through investments, stocks or mutual funds and any withdrawals made from a Traditional IRA.

Tax deductions

Ahh, tax deductions; they are money back in your pocket—but you definitely have to work for it! Signorelli explains that the government issues “standard deductions,” which are subtracted from your income before it is taxed. The standard deduction is $6,200 for an individual, but if you can accumulate more than that amount in personal deductions then you can deduct that amount instead! Some examples of things you can claimed as tax deductions are interest paid on student loans, the cost of travel if you moved for a job, charitable contributions, doctor copays and even the cost of a work uniform. In certain cases tuition and fees can also be deducted—the IRS has an application to check on your eligibility.

Pre-tax and after-tax benefits

Pre-tax is any money you make before taxes, and after-tax is the money you have left over after taxes. Most things going off a pre-tax rate are good things, especially medical savings accounts and commuter benefits. They save you money because you take away those costs from your income, meaning your overall taxable income is lower. Since these are costs you’d be spending anyway, if you can get them through your employer you can get a little something back come tax time. Signorelli says some employers will also offer ‘after-tax’ benefits, such as reduced costs for health and life insurance, however, she notes, they don’t come off your tax bill.

Whatever you’re looking to do—open up a credit card, lease a car, or maybe get a head start on your taxes—we hope this little guide of terms will help! Good luck, graduettes!

My name is Karishma Soni. I am originally from a suburb of Boston, MA known as Burlington and a senior at Suffolk University. I will be graduating this Spring with a BFA in Graphic Design. I grew up with deep interest and passion towards art at a very young age. As I got older, I took more art classes from elementary through high school and decided to pursue a career in the arts. I specifically chose to pursue Graphic Design because of the combination between business, commercial art and branding. Graphic Design is everywhere and branding is a necessity for consumers to buy products. The look and appeal of a certain design, such as beverage packaging, can make a huge difference as to whether or not consumers will buy the product. Overall, I enjoy the aspect of combining business and art since graphic design can still be corporate but pleasurable when combining one's artistic capabilities and expressionism.