Congratulations you’ve graduated! Depending on how your entry level job search is going, you either have no income yet and you are back living with your parents, or you got a job and you are making a whopping $45,000 a year. Neither of these scenarios sound that great. Life after college includes bills and responsibilities, including student loan payments, rent and long hours at work. Even though you have little or no salary now, your future plans will probably include: buying a house or car, taking a nice vacation, starting a family and retiring. Just because you are earning a small salary doesn’t mean you have to give up your goals; to get there, you have to do a great job managing your money.
At this point, you are in a very good position to start money management. Most people don’t start managing money until they are already in trouble with late payments and have incurred too much debt. Life after college is usually simple and you probably haven’t acquired much debt besides student loans. Here are some tips to start working towards your goals:
1. Live Within Your Means
You’re probably living on an entry level salary right now. That means that you can’t afford a penthouse apartment downtown, unless you have five roommates. You will need to evaluate every financial decision against your income. Can you afford a new car or should you make do with a used one? Should you live at home for a year to save money? New graduates that overspend end up saddled with debt that takes years to repay, detracting from their future goals. Living within your means now will pay big dividends in the future. Check out our section on monthly budgeting to learn more.
2. Work Hard
The easiest way to improve your lifestyle is to earn more money. Focus on career advancements at work by building your reputation as an exceptional and hard working employee. If you have increased your skills significantly and your employer has kept you stuck at your entry level salary, it may be time to look for another job. New graduates with lots of energy might also consider getting an extra part-time job or doing odd jobs as available. But before you do that, make sure it does not pose any issues with your current job.
3. Avoid Getting Into Debt
Most new graduates leave college with very little in the form of assets, so you may need to obtain a car to get to work and a couch for your apartment. On the other hand, acquiring debt can have terrible ramifications. New graduates generally have little or no credit, so you will likely be charged high interest rates on everything you borrow. Your small purchases can easily turn into hundreds of additional dollars in interest and credit card fees if you are not careful.
Try to pace yourself and evaluate every purchase that requires you to add to your debt. Can you get a secondhand couch temporarily from someone on Craigslist? Can you borrow an old car from your parents or buy a cheap used one until you can save up more money? These are decisions you have to make. If you don’t have the money to buy a couch with a $35,000 salary, then you probably don’t have the money to pay it off after putting it on a credit card. There are always cheaper options, you just have to be creative.
4. Save For A Rainy Day
The rule of thumb is that you should have 6 month’s savings to cover living expenses in case of a financial emergency. That includes becoming ill, getting into an accident, or losing your job.
Since you probably don’t have everything you need yet, you should start saving for those things too. New graduates often start putting money away for a new car, a house or a dream vacation. There are several financial vehicles that will pay interest on your money while you save (savings accounts, CDs, money market funds, etc). Check out our tips on saving to learn more.
5. Invest Your Money
If you are willing to accept various levels of risk, you can make investing part of your money management goals. Of course, saving and investing come after you finish paying your monthly bills and you have money left over. Educate yourself on the many forms of investment vehicles available (stocks, bonds, real estate, etc). You’ll want to find an investment that has an acceptable amount of risk for you. For instance, don’t invest in a volatile stock if you are absolutely unwilling to lose your money. Before you make investing a part of your money management goals, make sure you do significant research and feel comfortable with your decision.
6. Save for Retirement
The earlier you save for retirement, the more time your money has to grow. Most new graduates are not concerned with their retirement account, and would rather spend the money elsewhere. Money management advice rarely wavers when it comes to contributing to a 401k account: contribute as much as you can, as soon as you can. If your employer matches your 401k contributions, contribute at least as much as they will match. See our section on 401k for more information.