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With graduation season here, thousands of bright-eyed (O.K., at least a few might still be bright-eyed) new graduates are entering the workforce for the first time, embarking on their new careers or vocation. Quite a few will make more money in their first year out of college as they have over their entire lives thus far. When you look at it that way, it is not so surprising that many recent graduates get caught up in a spending frenzy, purchasing a new car, wardrobe for work, with many entering the “hyper-consumerism” sector as well as the workforce. The start of your career is the perfect time to start implementing good money habits and building wealth. Here are 10 great ways to start off on the right track with your personal finances.
Create a budget and stick to it-
Based on your new salary, whatever it may be, create a budget and stick to it. You can adjust your budget as the months go by, but you will have a hard time keeping your finances under control without it, especially when you first start your career. Starting now will lead to far less problems in the future.
Start an emergency fund-
Setting up an emergency fund will keep you from falling into debt when unexpected “emergency” expenditures come into your life, as they always do. Check out Emergency Fund 101 to learn more about why you need one and how to start one.
Save as much for retirement as possible as soon as you start working-
When you first start out, try to maximize your retirement contributions, to the greatest extent you can. By starting early, the power of compounding interest, and time, will allow you to build wealth much easier than someone even five or ten years older.
Don’t get caught up with the credit card shuffle-
It’s OK to have a credit card, or even two or three. The problem starts when you start abusing them and using them to purchase things you cannot afford. If you don’t have the money to pay for something, set a savings goal and save up until you have the cash to pay for it.
Don’t upgrade your lifestyle right away-
There’s no need to start “Keeping up with the Joneses” right when you start your career, although many people do, as I did myself. You have plenty of time to save up for things you want or think you need, there’s no need to rush while you are still trying to find your financial footing.
Start checking your credit report on a regular basis-
Now is also the time you will likely begin to really build your credit report, so take care of it. Check out www.annualcreditreport.com (this is the one and only government- sponsored free report site) to assess your credit report and do it on a yearly basis.
Avoid taking out loans to pay for things-
It’s OK if you are buying a house, or even a car, but for a car try to limit the length of the loan to 3 years, or even better, save up and pay cash. Definitely don’t finance other consumer items, such as furniture, electronics, etc.
Pay attention to your student loans-
If you have student loans, don’t neglect them. Also, don’t defer them if you are able to start paying them off right away, as they are still accruing interest. Look into loan consolidation as well, as you may get a better interest rate if you consolidate.
Set financial goals-
Whether it is a down payment for a house, or certain retirement savings goals, set some goals and try to achieve them. If you don’t set goals, you will find it hard to achieve your financial dreams.
Keep your life and finances simple-
Try to live simply and frugally, and you will keep more of your money in your pocket. Don’t over-complicate your finances either.
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Don’t buy a new car or lease a brand new car when you graduate!
@Nick:
Great point, buying, or worse, leasing, a new car after graduation can tie you down with a large loan payment-Mostly for driving to work!
Thanks for visiting!
I think that it is wise to try to spend in the same way as you did as a student (assuming that you were being frugal). You will need more things, such as a smart set of clothes and maybe more fuel if you have to drive further but if you can keep down the spending on luxury and unnecessary things then you can set a good habit.
As a recent college graduate reading this site, I have to point something out. If we’re reading this site, we’ve probably got an idea of the basics. Every ‘tips for college grads’ post is the same thing – make a budget, don’t buy a new car, save for retirement.
I’d really love to see one that’s a bit more useful to us financially savvy graduates reading personal finance blogs. I’ve got budgeting down to a fine science, I had to in order to make it through school. What I don’t know anything about is investing. I didn’t have any money to invest before! I’d love tips and pros/cons about where to store an emergency fund – online bank, money market, index fund, brick and morter, help? Maybe some info about taking advantage of benefits and the basic types of retirements funds available. And maybe a list of good beginning funds or investments for those of us who want to start saving for house down payments and such, but have no idea where to start.
Thanks for the feedback and visiting! You do bring up a very good point.
There are many graduates who are not as financially savvy as you who start off on the wrong foot when they start making money. I know, because I was one of them, and many (including myself) continued doing it for many years.(some never stop) I am still digging myself out of debt!
But there are also many graduates and people in your position, who have been out of school for a while that are not in debt and doing pretty well with their finances but are not so knowledgeable regarding money management and investing.
I appreciate the topic suggestions. I already have some articles regarding investing and retirement in the works. Your question about emergency funds is very good one as it brings up some important points- I am going to post on Monday or Tuesday about that so stay tuned!
Thanks again!