In a whirlwind of college life, make the pledge to avoid a financial mess when you graduate. Avoid deviant spending habits that can plague your social life and have you bonded to the shackles of debt. Let’s avoid making the topic of personal finance a debate. While in college you don’t need a financial advisor or obsess over the vast financial options which will lead you to decision paralysis.
What you need are the boring basics of money management. Getting started is more than half the solution to managing your money. You do not need to be a financial expert. Similarly to driving a car, you do not need to know how to put a car together. But, you do need to know how to start it. In college, there are only a few money basics tips to saving and managing your money you need to know.
- Redirect your money. Have you taken a look at your bank account and asked yourself “where did my money go?” It’s time to redirect it. Meaning, review where and why you are spending your money. It could be for legitimate reasons, such tuition, books, school supplies, food, rent, etc. Although, you may discover your money is heading towards to too many retailers and fast food/restaurants.
Action Step: Track your expenses for 2 weeks to one month. Next to each expense write down the where you spent your money, how much, and why you spent it. Then, evaluate your reasons why to discover your spending habits.
- Save while you sleep. Instead of coming up with a budget, allow me to ask you a simple question? Do you think you could save $2 a day ($60/month) a minimum? I think you can, especially after you have reviewed where you are spending your money and realize where you can cut back a little. With $2/day you can save while you sleep by automating your savings.
Action Step: Set up a $30 automatic transfer to your savings account. If you think you will be tempted to touch your savings account, open an account online through such stellar sites as ING, PerkStreet Financial, and Ally Bank.
- Automating your bills. With projects, tests, studying, and working, the last thing you want to worry about is paying your bills. Set up automatic bill-pay through your online banking. Or, if you have a credit card, you can pay your bills with your credit card to rack up points/rewards and increase your credit score. And, as always, pay off your credit card bill every month. For those bills not able to be paid by your credit card, have them automatically drafted from you checking account.
Action Step: Set up your bills to receive them electronically. Each biller has such as option. If you want to incorporate technology, you can check out Manilla to organize your bills and statements.
Advice for college grads
As a new graduate, you should be proud of this milestone accomplishment. You’ve worked hard to graduate. Maybe you are the college grad who had to juggle a job or two in addition to taking out student loans. Or, maybe you are the college grad who had their college education covered by scholarships, parents, and/or grants. Whatever the case maybe, you did it! You are turning over a new leaf and realized not everyone lands a six-figure job straight out of college. Whether you do or don’t have a six-figure job, here are some of my finance advice that you can implement as a college grad.
Excessive spending. As recent grads the convenience of eating out, happy hours, purchasing daily lunches have attributed to a bad spending habits that must be broken. Do not frequently indulge in luxury items. Many purchases such as the latest fashion trends or news technological gadget can be held off for another day. If you are a boomerang kid, you need to learn to divvy up your money appropriately (a.k.a budget). This will give you a much needed head start when you begin to live on your own. You need to know where and how you are spending your money. By following your money footprints you will be able to analyze where you are tempted to spend the most. For instance, you could be spending the majority of your money on food or entertainment, or impulse buys.
If you are living at home it’s an opportune time to take advantage of the low cost of living. If you are not paying rent, you should act like you are paying rent. You will begin to stack up your money in a savings account. As a boomerang kid, this is the perfect opportunity to save as much money as possible by eating at home more often and paying down student loan debt. Also, by taking advantage of living at home make sure you are contributing to the household whether it is by cooking or cleaning or even helping out with some of the expenses.
Set-it and Forget-it. A grave mistake most college grads make is waiting to save and invest. How would you like to make money in your sleep? Investing allows you to stack up your money. With ample time on your hands to invest, you would be a fool to not take advantage of your youth. Remember, you have enough time to handle grow your money and handle the stock markets turbulence. The best way to save and invest is to automatically “set-it” and “forget-it.” Here are my three recommendations:
1. Set up a brokerage account, such as Sharebuilder (ING). There’s no minimum account balance and you can set up automatic transfers.
2. Set up your 401(k), 403(b) with your employer which you will contribute every pay period a certain amount of money. Especially, if your employer matches you will be receiving FREE money. The money you contribute is pre-tax which means you can deduct your contributions and you won’t even miss it!
3. Begin building an emergency fund no less than $50/month. That’s a $1.67/day. That’s easy-breezy.
Establish credit. With the economic times, debt has been associated with having a negative impact to personal finance. However, if you don’t establish any credit you will find it to be difficult to get a loan, especially with favorable interest rates. At the same token, avoiding credit card debt that can lead you to digging a hole in your personal finances is important. When using a credit card, only charge what you can payoff, as you are gradually building your credit. You should avoid rolling over a balance because interest is compounded. By paying the minimum on a credit card you are avoiding to pay it off in a shorter time period, costing you more money. Many of you have student loans. Continue with your payment plan, but consider getting a credit card (which you will pay off every month) to help increase your score. A mix of debt makes up your credit score.
Not getting organized. This is a must after graduation. Although it may not seem like recent grads have much paperwork, you do need to organize tax documents, bank accounts, loan documents, credit card statements, etc. Using paperless technology you could always save your documents to a USB drive or you could always use a file container with labels to hold your documents. This will make it easier when it comes to tax time. In addition, a popular budgeting site, such as Mint, does more than keep track of your money. It keeps track of your goals, too.
Not negotiating your first salary. One of the biggest mistake a recent grad can make is not negotiating your first salary. This doesn’t mean if you are offered $40,000/year you should request $100,000/year. Sometimes the salary is fixed, so, consider other benefits such as work-from-home flexibility, health/dental insurance, vacations, sick and vacation time off, and education reimbursements. Salary is only part of the total compensation package. Recent grads should know how your skills will benefit the organization. Also, you should identify the needs of the person interview you and how you can be the solution. A mistake the recent college grads make is not emphasizing your internships, technical expertise, summer jobs that can positively impact your ability to do the job.