Money Tips for New Grads

The Wall Street Journal lists five money lessons for new grads as follows:

1. Savings matter. Whether you call it rainy-day money, an emergency fund or just reserves, having cash in the bank is important at any time, but it's especially comforting and crucial these days.

2. Find the fine print. Look at agreements and contracts as though you were on a scavenger hunt for key facts. Knowing the significant details will help you make better decisions and avoid much grief later on.

3. Focus on the total cost. If you want to keep more of your hard-earned money for yourself, calculate the full cost including interest and fees before weighing the monthly bill.

4. Debt is the great divide. While debt can be useful, more often than not, debt is a continuing drag on our finances that limits our choices and separates the haves and have-nots.

5. There is a permanent record. It's not your academic transcript that will stick with you, but how you manage your money. Credit scores, calculated by credit bureaus based on how much debt you have and how well you manage it, will follow you through your adult life. Over time, that score will affect how much you can borrow, the interest rate you'll pay, whether you can rent the apartment you want and sometimes whether you get a certain job.

Here's my take on these:

1. Of course. Save as much as you can as soon as you can (not just for an emergency fund but for retirement and other future needs as well.) The sooner you start, the more time compounding can work in your favor.

2. Ok, so looking at the fine print is a good tip, but I'm not sure it would have made the top five of my suggestions for new grads.

3. I almost lost out on a good deal because I wasn't looking at total costs. Good tip.

4. Funny how all the "debt can be good" people have gone underground since the recession, huh? Sure, they still say that college debt is ok (which it is IMO as long as the debt load matches expected income and it doesn't run amuck), but the mortgage debt people are certainly quiet these days. :-)

5. It seems to me that credit scores are becoming more and more important in our financial system, and I bet people will be paying more attention to them in the future.

So what would I tell new grads? Simple. I'd give them my three steps to becoming rich and recommend they read Free Money Finance every day. :-)

What would you tell a new grad to help him out financially?

Comments

[JerryB]

My advice to a new grad? That diploma you're so proud of doesn't mean squat if you don't work your butt off to prove to your employer that you earned it. It's not an entitlement that says you deserve a high paying job, just because you have it.

[F]

"What would you tell a new grad?"

Make a rough plan of what you're going to do with that salary, rather than a wait & see approach.

Realize that life is a tradeoff: if you want to spend more on one thing, cut back on another. Overall, it's good to have your priorities in mind.

[Rick Vaughn]

I don't know about you but last time I looked at a credit card contract it might as well have been in Chinese. Most of this stuff is a no brainer but it all comes down to who follows the rules.

[Studenomist]

I just want to say that paying for college with student loans (acquiring debt) is worth it if you are 100% sure you are in a program that you will find work. If you are attending college to please your parents or simply "just cause" then that debt will really weigh you down in life. Let's say you don't find work in the field. Well guess what? The company you are in debt to doesn't care. You have to some how make your mothly payments.

[TStrump]

The temptation when you graduate and get your first job is to go out and party hard.
Ironically, I found I actually had more disposable income during school than when I graduated and got a job, but I still kept up the same level of socializing.
My advice would be to go and have fun, but leave the credit card at home when you go out.

[BarrellRider]

"but the mortgage debt people are certainly quiet these days."

I believe mortgage debt can be a good thing. Although some people should not own homes, and some do not want to, for many homeownership is great. You must look at time line, lifestyle, income and utility. In my case family is important and we are very happy with the city we live in and plan on staying here forever, we have a small child and a second on the way and really enjoy the space, street, schools and lifestyle our home provides. Our income is also above average and we enjoy a nice tax break with the mortgage and property taxes. Not owning a home pretty much means you will be moving every few years on average and as you age you will not have a secure place to live without the threat of increased rent and fees. Many are suffering due to the drop in real estate, but it has been no worse than stocks over the past year and a half, if you had a 500k house with 450k of debt two years ago and now own a 375k home with 430k of debt you are fine as long as you make your payments. If you owned 250k in equities a couple of years ago, chances are they are worth 175k now.

[neal@Wealth Pilgrim]

I would ask them to consider who they are.

Why did you go to college? What are your ultimate goals? Spend time being really clear on that.

Why is that so important?

Because, IMO, when you are clear on your values and goals, it makes it easy to make smarter decisions.

Example. A student might say that she went to school in order to be a doctor ultimately. Why? To help sick people and to support her (eventual) family. I don't think these conversations are beyond the ability of most grads.

If she's clear on her values, it makes it easier for her to see how her spending/life style either supports those values or conflicts with them.

Be clear on values FIRST. It makes the spending,saving,investment, lifestyle questions easy to answer.

FWIW

[Maria]

No matter what spend LESS than you earn!
Never charge what you cant pay off on the next bill.
There is NO get rich quick scheme.
Get a mentor.
Start saving consistently, even if its ONE dollar.
If you have a deferred comp plan 401K,403B etc invest in it.
Join a credit union.
Debt=loss of freedom choose it wisely.
Read Your Money or Your Life by Joe Dominguez
Be grateful for the opportunities you have been give.
Respect yourself.

[Justin]

These are great tips for those just graduating from high school or college. As they step out into the "Real World," they could use all the advice they can get. Thanks for sharing.

[Param]

Don't recall where I read this... A prof used to give this advice to all grads passing out of college:

From your first salary onwards, create a "Go to Hell" Fund. This should allow you to say these words to your boss if you are being asked to something immoral or unethical that you disagree with. The last reason for accepting that command should be that you are tied to a salary from the job...

[Mohammed Haq]

Pay your debts off first.
Invest in the overall market; trust me, America won't fail
Live below your means - i.e. used car, cheap apartment, cook for yourself

Follow these rules, and anybody can be a millionaire by the time they retire.