July 29, 2011

4 Financial Tips for New Graduates

Once you’re out of college, there are a whole new set of lessons—and many revolve around managing money. Follow these 4 tips to avoid some common mistakes new grads make, and ensure you don’t learn your personal finance lessons the hard way:

1. Start Saving Now

This is probably the first time you’ve had to pay for rent, food, utilities, and student loans all on your own, so you may not think you’re earning enough to start saving, too. Still, it’s important to put something aside for emergencies. Tiny amounts add up fast when you contribute diligently to your savings account.

Establishing a budget is a critical step to help you identify:

  • Where you spend.
  • Where you can cut back.
  • How much you can save.

Use a budget calculator to investigate your finances—you may be able to save more than you think.

Once you know how much cash you need to survive each month, create your emergency fund—a basic savings account where you deposit any income you don’t absolutely need. If your employer offers direct deposit, use it to automatically deposit a small amount into your emergency account each pay cycle.

After saving 2 or 3 months’ salary, forget that you have this money. It’s for emergencies, and you’ll be glad you have it if you lose your job, have car trouble, get injured, or encounter any other unexpected expense.

After you achieve this savings goal, create new savings accounts for any big ticket items you need to buy. You’ll be used to reserving part of your pay check, so saving should be second nature.

2. Pay Your Bills on Time

It can be easy to let due dates slide when you’re balancing your job and your new life, but paying your bills on time is essential. Missing payments or paying bills late can:

  • Result in fees and interest charges that increase the amount you owe.
  • Make climbing out of debt more difficult.
  • Damage your credit score.

There are especially serious consequences for missing your student loan payments, so make on-time payment a priority. Use our email payment reminder to receive automatic alerts before your student loan payments are due.

3. Be Careful With Credit Cards

As a new graduate, you’ll receive plenty of credit card offers. Choose just one card that works for you and be sure you understand its:

  • Interest rate
  • Fees
  • Repayment terms

Your credit card can help build your credit if you use it wisely—but it can also make it easy to spend money you don’t have. Avoid having to pay down high balances by restricting yourself to purchases you can afford to pay off in any given month.

By paying your entire balance on time each month, you’ll be able to build credit quickly—which will help you secure a favorable interest rate when you want to buy a house or a new car. Paying on time can also help reduce the interest rate on your credit card.

If you need to carry a balance at some point, you should still be able to avoid high interest charges by paying off as much as you can each month and always paying more than the minimum.

4. Stay Organized

Part of your life after college needs to include certain administrative responsibilities. You will constantly receive documentation like:

  • Bank statements
  • Bills
  • Credit card statements
  • Receipts
  • Tax forms

If you let them pile up until you’re overwhelmed, you may never get around to dealing with them. So, keep these things in order and shred documents you no longer need. Put aside 1 hour a week to organize your finances in a system that you can manage. Developing healthy habits now can make all the difference for your financial future.