College graduation represents a new beginning in your life. For many, it will be the first time you are completely in control over your life and finances. The decisions you make now will effect how you live in the future. Here are some personal finance tips to help you as you start this new chapter in your life.
Personal Finance Tips for New Graduates
1. Don’t try to keep up with the “Jones’s”.
You’ve probably heard from friends who have already been living in the “real world” after their high school or college graduation. They’ve been working and probably receiving a steady paycheck, and so you’ll listen to them talk about the new house they just bought, the amount they spent on their wedding, new cars or fancy electronics. You know what’s interesting about the stories your friends are sharing? Most of them don’t tell you they’re spending money faster than they’re earning it and have already found themselves thousands, if not tens or hundreds of thousands of dollars in debt.
If you try to keep up with the Jones’s, as the saying goes, you’ll also find yourself with more debt than you can afford to pay back and a situation that will seriously hamper your future lifestyle, as well. Make smart decisions based on your own income level and situation – and don’t let yourself be swayed simply because you hear about many of your friends going on major spending sprees.
2. Consider more than a good paycheck when choosing your first “real” job.
If you select a job with a good salary, it allows you to save more for retirement, have a more flexible budget, and gives you negotiation room for higher salaries when future opportunities present themselves. That being said, you don’t want to choose your job based on the paycheck alone. Choosing career paths that keep you interested and happy is just as important, and at times, more important, than being financially situated. One of the best things you can do in your first job is chase opportunity, not a paycheck.
3. Start saving immediately and automatically.
The best thing you can do for your financial future is start saving as soon as you start receiving paychecks. Most employers will offer direct deposit, which will allow you to deposit your check into your high-yield savings account automatically. From there, you can set up automatic transfers each pay period from your savings to your checking account for the amount you need to pay your bills and have some spending cash. Allow the rest to grow in your savings account as an emergency fund.
The most important aspect to saving is to do it consistently and automatically. Many people fall into the trap of “saving what’s left” after paying bills or going away for a weekend trip. If you put your money into savings immediately, and only take out what you need each month, you’ll create better financial habits
4. Pay off debts and avoid new debts.
Many college graduates leave college with credit card debt and/or loans. Chances are, your debts are all of the high-interest nature, and it’s important that you concentrate on paying them off as soon as possible. Put any and all available money into paying off debts until you are debt free, and do everything in your power to avoid taking on new debts at this time. Most student loans are low interest, so it makes more sense to send them the minimum payments while concentrating all of your finances on paying off your higher interest debts first.
5. Start saving for retirement.
It may seem like retirement is so far away that you don’t need to concern yourself with it yet, but the reality is saving for retirement should begin as soon as you start making money. People who start consistently saving for retirement during their high school or college years will almost always have more money than people who begin saving later in life.
Once you’ve got your budget set up and are automatically saving money each month, you can look at opening a Roth IRA or an employer-sponsored 401(k) or 403(b) plan. If your employer provides matching contributions for the 401(k) plan, you should invest at least as much as your employer match limitations to take advantage of the “free” money. If you don’t have a 401(k) or 403(b) plan available to you, look at opening a Roth IRA and set up automatic contributions through your bank account to ensure you are investing consistently.
6. Be prepared to make mistakes and learn from them.
When you’re first starting out in the “real” world, you’re probably going to make some mistakes. If you should make a poor financial decision, just recognize that it wasn’t your best move, learn from it and move on. Don’t beat yourself up over it or give up and go on a major spending spree just because you may have fallen off the financial wagon temporarily!