Personal Finance Tips For New Graduates
The following is a guest post from Thomas over at Wealthprep.ca – So, you’ve graduated from college and you’re out on your own. Managing money with a steady job is a lot different from managing money while you’re still in school. When you graduate, you have more income, more expenses, and more responsibilities. The financial decisions that you make today will create your future lifestyle. Learning the basics will set you up for a solid financial future.
Personal Finance Tips for New Graduates – Budget
In order to avoid surprises, your expenses need to be planned. Creating a budget will help you control your financial health. Wealth is not a result of how much money you earn, but of how much money you keep. A budget will help ensure that you are spending your income on the right things, and it will ensure that the month end bills do not come as a surprise. As a new graduate, you will have to plan your income against rent, student loan repayment, groceries, and utilities. Make sure that your cash flows are aligned, so that you are not forced to charge common expenses to your credit card while waiting to be paid. It is very important to set aside some money for savings, even in your 20’s, because time is a valuable asset with compound interest. Most banks offer online banking software to track your credit and debit card spending. These are useful tools when creating your initial budget. Group your spending into categories, and look for areas in which you can save money.
Personal Finance Tips for New Graduates – Pay Off Your Debt
Student loans can last well into adulthood. Education can cost upwards of $20,000 a year, and unfortunately, many people are stuck paying off their loans and a mortgage at the same time. To protect yourself from compounding interest, it is important to pay off your student loan as quickly as possible. Depending on your interest rate, you could end up paying more in interest than on the original principal over the life of your loan. Most banks will allow you to pay more than your regular monthly payment on a student loan. This allows you to contribute directly to the loan’s principal and save on interest costs. If the interest rate that you are being charged on a loan is greater than the return you can receive on an investment, it is more cost effective to repay your debt. If you make an investment with a smaller interest rate, it will end up costing you more than making a contribution towards your loan.
Personal Finance Tips for New Graduates – Emergency Savings
Accidents happen. Unfortunately, you will incur unforeseen and unexpected costs in your life. It is important to prepare for these hard times with an emergency savings account. Set aside a portion of your monthly income to protect yourself in the event of a job loss or a serious injury. Experts recommend setting a goal to save for 3 months of expenses. It is also important to ensure that you are adequately covered with insurance. A good insurance policy can financially protect you and your loved ones in case something unfortunate should happen.
Personal Finance Tips for New Graduates – Build Good Credit
Credit card companies collect information on your use of credit and repayment history. This information is standardized into a credit score which allows lenders to determine whether to extend you credit. The information is also used to determine the interest rate at which you will be lent funds. A good credit score is important for loaning or leasing a car, or applying for a mortgage. As you use and repay bills and debts, you are building good credit. To keep your score high, it is important to stay within your credit limits on your cards and lines of credit, and repay your debts in a timely manner. It is OK to use a credit card, but only spend what you have. Using one credit card, within your credit limit, and paying the balance in full every month will have a positive impact on your credit score. With this practice, you will not be charged any interest, and you can earn rewards on your purchases.
Great information, guys! Thanks for sharing 🙂
I wish I got this advice when I got out of school!
Now, my little sister is a freshman at UCLA – my husband and I are making sure that we talk to her about this even before she graduates. At 18, she has her own emergency fund set up and an investment account. We’re working on getting her set up with her Roth also – you can never be to young for this.
It’s a very important thing to be prepared for anything, financially! Bravo 🙂
Anneli @thefrugalweds recently posted…Recipe: Brie & Spinach Grilled Cheese (and we’re competing in the Grilled Cheese Invitational THIS weekend!)
Anneli,
Sounds like you are doing a great job of preparing her for the real world and getting started off on the right foot! That’s great that you’re such a good Sis!!
Great post! Very interesting and practical after all.
One thing I would add, make sure to apply for jobs before graduation to be sure you have a case where you will be somewhat financially stable.
David recently posted…Is Global Warming truly happening?
David – great point. It is a good idea to move right from school into a job is you’re looking to follow the most financially protective approach.
Great tips – it seems like common sense, but just flat out budgeting is something that I found hard when I started out. After all, I was finally making the “big bucks.” Why would I have to budget? Next thing you know, my new wife and I were over spending and racking up debt.
Brock @cleverdude recently posted…An Easy Way To Protect Yourself Against False Vacation Rental Charges
Brock,
You’re exactly right! It’s hard to beat basic budgeting as a primary tool to keep us out of trouble 🙂 Thanks for stopping by!
All the points mentioned in this blog post are time tested ones. Summing them in a blog post is worth praising. Yes, we all had our student loans and paying them off were our major concerns. In fact, what we generally miss out during our formative years that lifelong burden of student loan will not only adversely affect our financial prospects but also our normal lives. We generally tend to overspend on living our lives rather than paying off our debt, especially student loans. In fact, 90% of people I know have committed this mistake, including me, but realized later, just the way I did. Therefore, this blog post will definitely be a eye opener and a guide to financial prudence.
Martha,
I’m glad that you agree these points are important to keep in mind!
One thing I learned, you cannot treat your bill payment deadlines like homework assignments or papers and do them at the last minute or even late. There are way too many penalties and negative consequences to credit ratings.
Scott @ Youthfulinvestor recently posted…Choosing Your College Major in a Post-Recession Work Environment
Scott – so true. Paying your bills late is a recipe for disaster. Thanks for stopping by 🙂