Congratulations! You’ve done it! Those four (or more) years of college are now in your rearview mirror. You’re excited and ready to start your new life. If you’re fortunate you already have a job or one lined up or maybe an internship. You’ll soon be making more money than ever before in your life. But before you charge off to start buying stuff it’s important to draft a financial plan. If you do this now you’ll have a much better chance of avoiding the common financial problems that plague many new graduates.
Following are six pieces of financial advice that can help smooth out your transition from college to the “real world.”
#1. Start saving
The first important tip in financial awdvice is to determine how you could live below your means. When you do this you will have extra money that you could set aside as an emergency fund. And trust us, you will ultimately have an emergency. This is even more crucial if you graduated owing on student loans. If so, this would at least put you in good company as roughly 69% of graduating college seniors in 2013 had student debt that averaged $28,400.
If you are now making a salary of, say, $2000 or $3000 a month your best move would be to try to live on $1000 a month and bank the rest. This would give you money you could use each month to pay off your debt. When you become debt-free you will have money you could save for retirement, to buy a house or to get a new car.
#2. Keep your spending to the minimum
It’s best to sit down, calculate your earnings and expenses and then put a limit on your spending. This is critical if you just snagged a new job. When you practice good financial habits now they will stand you in good stead the rest of your life. There are many smart phone apps available that would make it simple for you to do this. The best idea is to continue living as if you were still a broke college student. You survived on that tiny income for four years and there’s no reason why you couldn’t continue to do so for a couple more years and get a real head start on your savings or investing.
#3. Work on your money management skills
When you start your first job make sure to carefully review your employee benefits such as health insurance, retirement accounts, disability insurance and so on. You should also begin educating yourself on smart money management by reading a few books or even scheduling a one-on-one meeting with a financial planner. The important thing is to treat your finances as if they were yet another college course and do a lot of reading and research. The more you understand about personal finance the simpler and less stressful your financial life will be.
Don’t forget that if you have student loans your first payment or payments are due in October. If you fail to make a payment or if you are late in making one you will be in default and trust us that’s something you don’t want to happen. Technically you are in default on a student loan the day after you miss a payment. However, it will be 90 days before this will be reported to the credit bureaus and more than a year before your account might be turned over to a debt collection agency.
If you believe you’re going to have a tough time making your payments, go on the
U. S. Department of Education’s website and check out the repayment options available. There is one very popular plan called Graduated Repayment where your payments start low and then increase every two years. This can be an excellent choice if you have a job where you can see that your income will also increase in the years ahead. There are also three income-driven repayment plans. This is where your payments are tied directly to your income. The best of these is Pay As You Earn, which would cap your monthly payments at 15% of your adjusted earnings. This means that if you were out of work and earning nothing your monthly payments would be the same – nothing.
You should also contact your lender or loan servicer if you believe you’re not going to be able to make your payments. The sooner you make that call the sooner you will be able to get some help.
#5. Don’t fall prey to lifestyle inflation
When you get a big boost in your income it’s very tempting to go out and start buying things like a new car or to rent that two-bedroom luxury apartment. It can also be tempting to use your credit cards to pay for the furniture you’ll need for that apartment. Some people even take on credit card debt before their student loan repayments begin and then find that when they kick in they don’t even have enough money to buy groceries. This can lead to an endless cycle of default and deferment. And yes, it’s okay to upgrade your life somewhat after graduation so that you can say goodbye to those Ramen noodles but just don’t get carried away. Remember that those student loan repayments will soon come due and plan accordingly.
#6. Negotiate for a better salary
There’s nothing wrong with haggling over your salary and benefits – even when it’s your first job. For that matter, this demonstrates a sign of professionalism because even though you graduated recently you do understand how the working world works. You should, of course, express enthusiasm and appreciation for the job offer but remember that if you were able to negotiate just a small increase in your salary this will pay off in thousands of dollars over your working life. It’s also a good idea to practice your job offer conversation before you talk to that potential employer. Make sure to research your field so you will know what is a fair salary. If the salary is indeed fixed and you can’t negotiate anything better, focus on the other benefits, which can be worth as much as 33% of your salary. These are things that many first timers overlook. Make sure to ask about health care benefits, retirement accounts, vacation days, the flexibility to work at home and so forth. Just sit down, decide what’s important to you and then prepare for some professional haggling. You’ll probably find it just takes one round of negotiations.