What every college graduate should know about money: 7 personal finance tips
The graduation ceremony for the 2021 class is here. Some university graduates have studied physics and will continue their careers in rocket science. Others plan to become doctors, memorizing every bone in the body, while a few are walking history encyclopedias. But how many of them can – and do – balance a checkbook?
According to the Pew Research Center, 52% of Americans between the ages of 18 and 29 still live with one or both of their parents. This could be attributed to the nation’s student loan debt, which hit an all-time high of $ 1.6 trillion, and the job market that keeps graduates in internships and minimum-wage positions for years after graduation. university. This means that many recent graduates have never paid their own rent, balanced a checkbook, or created a budget, let alone learned to live on one.
The good news in this grim statistic is that learning the basics of personal money management isn’t really that hard. Here are seven personal finance strategies that can get you started in your postgraduate life:
- Learn how to create and live on a budget. We have listed it as the first strategy because it will form the basis of everything else you do from a personal money management perspective. Until you have some knowledge and control over how much money you earn and spend, you won’t be able to implement other personal finance strategies. The concept of budgeting is actually very simple – it is the execution that is often difficult. The first step is to determine your total monthly income and expenses. Then subtract the latter from the former to see if you are currently spending more or less money than you are making. Hopefully you are spending less, in which case you can start thinking about how you will save and / or invest your excess money (see the next two strategies below). If you’re spending more than what you earn, it’s time to take a careful look at your spending and figure out some areas where you can cut a little – or maybe a lot. Additionally, you might consider a second part-time job to increase the income side of the ledger.
- Make sure that your High financial priority. As they embark on their professional careers, recent college graduates often place saving low on their priority list because their incomes are likely relatively low. But making saving a top priority instead will instill strong financial habits that can last a lifetime. No matter how much you pay, you can probably save yourself something. The amount is not as important at this point in your life as developing the discipline of saving. One strategy is to save a percentage of your income – this way your savings will automatically increase as your income increases. Set an initial goal of saving three to six months of living expenses in an FDIC-insured bank or money market account. This can serve as a “rainy day” savings account that you can use if you have a financial emergency, like an expensive car repair, a hospital bill, or a prolonged period of unemployment.
- Learn the basics of investing. It’s important to realize that saving money and investing money are not the same thing. After you’ve built up your emergency savings account to a comfortable level, you can start thinking about how you might want to invest some of your excess money in stocks, bonds, or other financial instruments. Investing involves accepting the risk of losing some (or even all) of your money for the potential of earning a higher return than that offered by savings and money market accounts. In general, the riskier your investments, the higher the potential return can be. It may be wise to take on a bit more risk when investing for long-term financial goals like retirement (see next strategy below).
- Start thinking about retirement. Yes we said retirement. While retirement may seem like the last thing you need to think about right now, the reality is that the sooner you start saving for retirement, the more time you have to take advantage of compound returns and tax benefits. In fact, time is a retirement saver’s best friend. Look at the difference starting to save for retirement early can make: John started contributing $ 90 per week to his company’s 401 (k) plan at age 25. If he continues to do this for 40 years and earns an annual return of seven percent, he will have a retirement nest egg worth $ 1 million when he turns 65. But Jane didn’t start contributing to her company’s 401 (k) until she was 35. she will have to contribute more than twice as much money at her 401 (k) every week ($ 190) to rack up $ 1 million by the age of 65, simply because she waited ten more years to start. Since investing for retirement is, by definition, “saving” (our strategy tip # 2), you’ll kill two birds with one stone if you invest the money in a 401 (k) or IRA. Let MoneyTips’ Free Retirement Planner help you calculate when you can retire without compromising your lifestyle.
- Get – and then stay – out of debt. Too much debt could hurt your long-term financial security the most. So paying off any debt you have when you graduate from college should be another financial priority. If you have student loans, start with them. Set a repayment goal for a certain date in the future, maybe five years from now. If you ran into credit card debt while in school, pay it off as quickly as possible. If you want to consolidate your debt, join MoneyTips and try our free debt optimization tool, then pledge not to get into debt, especially high interest credit card debt. One way to do this is to pay for all purchases with a debit card or with cash. If you use a credit card, pay off the balance in full each month to avoid paying interest charges.
- Build a solid credit history. Your credit score will become one of the most important parts of your financial life – positively or negatively – in the future. This will affect everything from approving a car loan or mortgage (or even an apartment lease) to the interest rate you will pay on these and other types of loans. Some employers even check a credit history before offering a job to a candidate! The best way to build a strong credit history and maintain your high credit score is to pay your bills on time. You can check your credit score and read your credit report for free within minutes by joining MoneyTips. Carefully review your credit report and contact the appropriate credit reporting bureau (TransUnion, Experian, or Equifax) if you spot any errors or mistakes to resolve them quickly. Errors in your credit report can be signs of identity theft. Protect your credit – protect your identity – protect yourself with a MoneyTips Premium subscription.
- Establish the discipline and humanity of giving. Take the same approach to giving as you do to saving by committing to donate a percentage of your income. It doesn’t matter where you donate the money – it can go to your church or place of worship or to charitable causes you support. By establishing the discipline of giving money early in your life, you will adopt a more generous attitude in other areas of your life.
The first few years after graduating from college can be the most exciting time of your life. By learning and implementing basic personal finance strategies like these during this step, you will build a solid financial foundation that will last for the rest of your life.
This article was provided by our partners at money advices.com.
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