It’s June and that means lots of young folks are graduating. For those of you getting ready to walk across the stage and receive your diploma…CONGRATULATIONS! Now, it’s time to start “adult-ing”.You’ve finished school and now it’s time to join the work-a-day world. The next few years can cast your financial lot for the rest of your life, so here are some tips to help you get off to a good start:
- Develop good spending habits – It’s tempting to go out and buy a new car and a new wardrobe to treat yourself after all your hard work in school…don’t do it! Create a budget and stick to it. Pay particular attention to discretionary spending on the big money wasters:
- Dining out – A coffee here, a burrito there can add up in a hurry! If a coffee per day is your vice, make sure you budget for it. Try making coffee at home and reward yourself at your favorite coffee shop once per week.
- Transportation – The auto industry spends over $35 billion (US) per year on marketing and advertising. They spend a lot trying to convince you to want/need/deserve a new car. While you may be tempted to reward yourself with a shiny new model, this is a rookie mistake. If you need a car for work-related transportation, buy a used one that fits within your budget.
- Housing – Your first thought may be that it’s time for that fancy apartment you’ve always dreamed of…not so fast. If it’s possible, think about living at home until you’re able to get a handle on your finances. If you do decide to get a place, consider house hacking. Small sacrifices now can yield great gains later!
- Create and keep a budget – Have a budget. Not a rough number in your head, but an actual budget written down on paper (or use an app such as YNAB or Mint.) Preferably it should be a zero balance budget where every penny of income is covered. This would include miscellaneous “fun money” and monies allocated to savings.
- Tackle your debt – Student loans are the $1.2 trillion gorilla in the room. That’s the total outstanding student loan debt in the U.S. If you are one of the recent college graduates leaving school with thousands in student loans, you should develop a plan to aggressively tackle your debt. Paying only the minimum amount can keep you in debt for nearly the entirety of your working life. Getting a jump on this debt and paying down as much of the principle as possible will allow you to save 10s or even 100s of thousands in interest over the life of the loan. Credit card debt is another pitfall - avoid high interest cards and discipline yourself to only purchase items that you can payoff in one billing cycle.
- Start saving – After graduation, don’t think you can’t save until you tackle your debt in its entirety. This limits your choices such as buying a home or starting a business, and keeps you stuck in a cycle of constant debt. Build and maintain an “emergency fund” and make sure you budget for anticipated expenses. Not budgeting to replace something that you know will wear out isn’t an emergency, it’s poor planning.
- Max out your employer-matched 401k – If you are fortunate enough to land a job that provides a 401k with an employer match, you should try to max it out. This is a great way to increase your savings and your income simultaneously.
- Read up and Learn about Personal Finance and Budgeting – A college degree is a wonderful thing, but there’s a good chance that what they didn’t teach you was personal finance. Spend time reading and listening to podcasts. You don’t need to know everything, but the more you know the more effective you’ll be at managing your money.
- If you’re going to splurge, make it worth it - Let’s face it, delayed gratification is one thing, but not living is another. If you’re going to splurge and spend, do it on things that make great experiences and lasting memories. It’s easy to develop and maintain good financial habits if you occasionally reward yourself. And just imagine how much more enjoyable a vacation abroad will be if it’s budgeted and at least partially paid for ahead of time.
Have questions about student loan debt, personal finance and investment? Let’s talk.