Graduation is the theme all around my neighborhood. It is a time of excitement and big dreams. Unfortunately in most cases, personal financial sense is not a taught at college.
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Once out of college, going from living broke to a big paycheck every month can easily encourage lifestyle inflation and a downward spiral of bad financial habits. Hence, it is essential to establish a good personal finance foundation to avoid getting trapped in a lifetime of debt. Here is a checklist I would hand over to a new graduate to make sure they start on the right path.
Learn to network efficiently: Invest time in networking. Learn about your colleagues. Find a mentor and build relationships at every level, both above and below yours.
Start a case study file: By "case study file," I mean make a list of all your accomplishments rather than a list of projects you worked on. For example: Cut 20 percent of production costs while maintaining the same product quality. Include information on which project and what you did to achieve that. This will be of great use in many situations like an annual review, a salary negotiation or a new job search. In addition, keep your resume updated at all times.
Promote your personal brand: As a job candidate, 86 percent of potential employers will look at your social profiles, so spend some time cleaning up all your social media profiles.
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Create a budget: You might feel like you are flush with cash going from a student's pay to a full-time-job's pay. Create a budget even before you get your first paycheck. Continue as much as possible to live like a student and set money aside for your future goals.
Pay yourself first: The first bill you should pay each month should be to you. Before you pay for your groceries, before you pay your mortgage, before you do anything else, put money aside in your savings. Most people will wait to pay all the bills and save the money left over. It is fine in theory, but the problem is there is almost never anything left over. If you pay yourself first, even if it seems impossible initially, you will learn to live with what is left over. This way you will always spend less than you earn.
Borrow a book or two on finances: Knowledge is power. Arm yourself with as much personal finance knowledge as possible. I recommend "I Will Teach You to be Rich" by Ramit Sethi, if you are just starting out.
Start an emergency fund: Establish a rainy day fund as soon as possible. Start with $1,000 to cover small emergencies, then move on to saving 'X' number of months' expenses to make sure a sudden job loss or illness won't put you in debt.
Think five and ten years ahead: Right now your 20-year-old self might say that you are never going to get married or you will always be renting. But in five or ten years, it is very likely you would have changed your mind completely. Do yourself a favor and start saving for standard goals anyway -- a wedding, down payment for a house, or your dream vacation. If you don't end up spending money on a wedding, you can always reallocate it to another goal.
Get started today: Time is the most powerful ally when it comes to investing. Many people keep waiting to learn everything about investing to start. Don't get stuck on debate minutiae. Get started with some basic, low expense, index funds -- total stock market or life-cycle funds. As you learn more about investing, you can adjust them accordingly.
Don't pass up free money: If your company offers a 401(k) plan, especially with matching funds, take full advantage of it. Sign up to contribute the maximum. That way you will never see the money in your wallet, you won't miss the money, and you won't be tempted to spend it.
Manage your debt: If you have student loans or credit card debt, pay them off aggressively, starting with the highest interest rate loan.
Avoid consumer debt: I do not believe credit cards are evil, but they are not for everyone. Understand the pros and cons of credit cards. Do not buy things you cannot afford. If you want something, save for it.
Build your credit: Unless you are determined to pay everything in cash, you need decent credit to get a good interest rate on your loan, whether a car loan or a mortgage. Even if you are in the cash camp, it is still a good idea to maintain a great credit score as it is now used by utility and insurance companies to give you preferred rates.
Insure adequately: When you are in your 20s, you might feel invincible and be tempted to skip health insurance to save money. Don't! Accidents happen, and so do sudden illnesses. If your company offers health insurance, that is most likely the cheapest option. If you are under 26, you can also check the cost of insurance as a dependent on your parents' plan. If you are single with no dependents, you probably don't need life insurance, unless you have a loan that someone else co-signed for, if that is the case, insure yourself at least to cover that loan amount.
Nobody cares more about your money than you do. By setting up a good financial foundation, you are setting yourself up for success.
The original article can be found at FiveCentNickel.com:
Essential money tips for new college grads