Seven in 10 college graduates (about 69 percent) graduates with over $28,000 in debt. As if this isn’t enough, most college graduates are also setting out to begin paying all of their own bills for the first time and taking charge of their personal finances. If this is you, don’t worry. There are a few things you can take note of to keep control of your finances in this new chapter of your life.
Pencil out a budget. Using pencil is a key here. During the first few years out of college, many graduates change jobs. They sometimes make more money (or less) and their budget has to be adjusted. Drawing up a budget and sticking to it is important for overall financial wellness.
Begin retirement planning with your first job. With the first job you get out of college, you should begin planning for your future (if not before then). You can set up automatic withdraws from your paycheck and stack up money in a 401(k) or Roth IRA for retirement. Oftentimes, if the company has a retirement savings plan (like a 401(k)), your employer will match your contribution. You will also get a tax break on the money you put into your retirement fund.
Know the value of your money. When you look at purchases, you should think about how much time it took you to make that money. For instance, if you are thinking about buying the new FitBit watch for $300, think about how many hours it takes you to make that money. If you make $15 per hour, you would have to work for 20 hours to get that FitBit watch. Is it worth it?
Don’t be afraid to move back in. Moving back in with your parents is something almost every college student fears. If you’ve been in a dorm for four years, moving back in with mom and dad can seem like a drag. You go from having all the freedom in the world to having to follow your parent’s rules again. However, you can benefit from moving back home. Taking up residence at your parent’s house can help you save money, give you time to focus on finding the job you want and can also be a nice change of pace from the hustle-and-bustle that was university life. Don’t worry. You won’t be there forever.
Don’t use your credit card as a default payment method. Lines of credit should only be used when it is necessary or when you know you can pay the bill in full. For instance, many people use their credit cards for their day-to-day purchases to rack up rewards. This is perfectly acceptable if you don’t overspend. Simply purchase the things you would always purchase with your credit card and then pay it off in full each month.
You have to have an emergency fund. Having money set aside for emergencies is a must! The loss of a job, car repairs and some medical bills can’t be foreseen. If you have money set aside for these unexpected costs, you won’t have to go into debt paying for emergencies. The ideal emergency fund would have at least $1,000 to $2,000 in it.
Continue learning. Even though you are done with college, you should never stop learning, especially when it comes to your finances. Pick up a few finance-related books, take a finance class or find a financial advisor to help educate you about saving and investing. Never stop learning and educating yourself.
Splurge a little. While saving and planning are important, you should also splurge a little bit of money on experiences while you are young. Many students take the summer after college to travel. If you have the opportunity to do so, you should. Don’t be afraid to spend money on experiences.
What advice would you give to new graduates?
Photo: Flickr: John Walker