Congratulations, graduates! You've finished school and now you get to join the real world with the rest of us. It's nice here in the real world. You get to make your own decisions. You get to pick your destiny. And, best of all, you get to spend your money any way you want. Just be careful with that freedom; it can come back to bite you in the ass.
When I first graduated and got a job, I admittedly was not very smart with my money. I applied for too many credit cards. I spent money like it was useless paper. I basically got in over my head. But because I'm a nice guy, I don't want to see the same thing happen to all of you. Since I now run a financial website and know a lot more about how money and credit work, I decided to put together some tips that I wish I knew when I started my first job. Hopefully they help you make better financial decisions than I did.
Set Up a Budget: This is the most important part of starting your first full-time job. You'll probably be making more money then you've made in your life before, and your first instinct is going to be to spend that extra income. That's what I did. Before you blow all of your first paycheck in one place, set up a budget of what your monthly bills are. You will probably be in a brand new apartment with energy bills, cable bills, water bills and others that you will need to pay each month. You also won't be living off of dorm food and meal plans anymore, so you'll need to make a food budget. Also, start putting some money aside for a rainy day; you'll need it for grown-up, responsible things like getting your car fixed or paying for a down payment on a mortgage. After all of those bills are figured out, then you can use what's left to go a little wild.
Pay Off Your Debts: Once you have a plan for your finances, it's time to start taking care of your debts. I'm not talking about paying off your entire student loan balance, but just taking care any credit card debt you may have accumulated during college. I used several credit cards in college to not only pay for my tuition, but also beer for the weekends. When I left school, I was swimming in credit card debt. Instead of working to pay it off, I paid the minimum balance each month to get the lenders off my back. This means that I kept adding on over-limit fees and interest to my balance, and before I knew it, I was completely in debt. If you can get ahead of your debt and pay down your balances to avoid fees and interest, do it.
Get a Credit Card: Part of my problem was that I didn't know how to properly use a credit card. If you don't have a credit card yet, it is time to get one and figure out how to use it. Many college students get credit cards and see them as an extra source of income, but that is not how you should properly use a credit card. Think of a credit card as a 30-day loan that you must pay off at the end of each month. This will help you reap the rewards from your credit card (like rewards points or a higher credit score) without getting hit with penalty fees or huge interest rates. If it is your first credit card, it might be a good idea to start with a student credit card that has a low APR and gives you rewards points. If you can't qualify for a student card, try getting a secured credit card. These cards usually have a low balance and a high sign-up fee (usually equal to your credit limit), but they report to the three credit bureaus and will help you improve your credit score so you can qualify for better credit cards later.
Start a 401K: Depending on what kind of job you get, your employer will probably offer you a 401K plan. Sign up for this as soon as you possibly can. I waited until I was almost 30 before I set up my 401K, and when I crunched the numbers of how much I would save by the time I retired, I realized I was very late starting my savings. Do research on your company's 401K, and if they have a matching program, you would have to be an idiot not to get involved, since that is free money your company is giving you. Even if your company doesn't offer a 401K program, start your own IRA and start contributing a part of your paycheck to it every month. Some IRAs even let you contribute pre-tax, which will save you money in the end.
Know Your Credit Score: This is the biggest thing I wish I knew. Credit reports and scores are like the best kept secret until you apply for your first credit card or apartment. I had no idea what a credit score was, but quickly found out that mine was ruined when I got turned down for an apartment. Most people don't even think of checking their credit score until they are applying for credit cards or loans. But knowing your credit score ahead of time will give you time to improve it before you need to make any major purchases. Everyone is entitled to a free credit report from each of the credit bureaus once a year, so make sure to take advantage of that. If you need to improve your credit score and want to keep tabs on it, you can sign up for a credit report monitoring service to watch the progress of your score. If you need help building your credit score, try these tips.
This might sound like a lot, but following these tips can actually reduce the stress on your life and make you much happier in the future. Trust me, I wish someone had told me this when I first started out in the real world. Happy Graduation!
- Jack Ryder, Simple. Thrifty. Living.