Being Smart With Your Money as a College Graduate: 10 Tips
It’s the time of year where many people will graduating college and going into the “real” world. The party is winding down and reality will be setting in. College is not the easiest place to learn about finances. You’re taking on debt while not bringing in much, if any, income; all with the hope of a return in the future. I wanted to outline 10 tips for new college graduate stepping out on their own.
1. Read a Few Books on Money
I recommend The Richest Man in Babylon and Get a Financial Life: Personal Finance in Your 20s and 30s, but there a hundreds of books out there that will help.
2. Create a Budget
Once you start working and bringing in a few paychecks, figure out how much you bring in after taxes each month and start calculating your expenses. Figure out the necessities like housing expense, food, gas, car, student loans, etc. Use that to find how much you have left for spending and saving, and remember to always pay yourself first!
3. Emergency Fund = Top Priority
I’ve said this many times, but having an emergency fund should be top of the list. You never know when something could happen that could set you back financially if you don’t have one set up. The rule of thumb is 3-6 months, and check out our post here about getting one up and running.
4. Live Rent-Free, If Your Parents Will Let You
I’m a huge fan of saving money, however some parents may get mad at me for saying this. Make sure it’s ok with them prior to making the decision. Also, be sure and carry your weight, if they want a little bit of rent, ok, if not, be sure and help with cooking and cleaning. Don’t treat it like a bed and breakfast.
5. Start Reducing Your Debt-Load
As a recent college graduate one of the biggest things you’ll have once you leave school is a nice big student loan. Start paying this down as quickly as financially possible for you. Figure out where you can cut spending and dedicate some of those extra funds to paying down debt.
6. Don’t Take on New Debt
It could be tempting once you start bringing in income to go out and splurge. Resist this urge! You don’t need a new car or clothes, cut out the unnecessary. Lifestyle inflation is a real thing and I see it happen all the time to new graduates starting out in their careers.
7. Start Investing
It’s never too soon to start investing. One of the biggest benefits you have right now is time. Starting early can set you up for retirement in the future. As Albert Einstein said:
Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.
8. Maximize your 401k
If you’ve got a 401k plan with your new work, maximize what you contribute. If they’ve got a company match make sure you are taking advantage of all that free money.
9. Don’t Use Your 401k As a Piggy Bank!
Unless it is absolutely necessary (i.e. Start that emergency fund!), you should not be taking money out of your 401k. Watch out for this when changing jobs and trying to rollover your old 401k. I just recently got mine figured out. There are some very heavy penalties for cashing out a 401k early.
10. Enjoy Life
You’re young college graduate, so enjoy it, because you can’t get it back. Soon enough you’ll have a lot more on your plate and it will become more difficult to splurge on fun stuff. Go out and travel, the memories will last you a lifetime and there is no price tag on that. I still think you should follow my other tips, but if you are smart with your money and save enough, go ahead and take that trip!
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