Published August 08, 2013
Land that first job after graduation? Paychecks finally coming in? After four or more years of living the Spartan student life, it's time to spend! Or is it?
If professional financial planners could go back in time, many would have important words of advice for their younger selves back when they didn't know everything about credit cards, budgeting and building a career.
"When you're young, that's the best time to build good habits that help you later on in life," says Ben Barzideh, a wealth adviser at Piershale Financial Group in Crystal Lake, Ill.
Here are key pieces of money wisdom financial professionals want to impart to young adults just starting out on their own:
1. Live within your budget
"If I could talk to my younger self, I'd say, 'Don't overspend and live above your means.' The most critical part of that is having a budget and sticking to it," Barzideh says.
"I look back to my college days and the first few years afterward, and it was almost understood that you'd go out every weekend. But before you'd know it, you could spend hundreds of bucks a week," he says. That was money that seemingly disappeared into thin air.
Now Barzideh knows better. He is a firm believer in creating budgets, and he makes a point to advise his clients to do the same, whether they choose to use software for the task or something as simple as a spreadsheet that lists income and expenses.
"You've got to have a budget so you can see the flow of your money, how much is coming in and how much is going out," Barzideh says.
"A budget allows you to cut frivolous expenses for items you wouldn't miss, and move those funds into savings instead," he says. "You always want to have money for emergencies built in."
For simplicity, consider setting up an automatic transfer from your checking to savings account on a regular basis, based on how much your budget allows. It's an easy way to help you save money, he says.
2. Too many credit cards = too much temptation
Eleanor Blayney, a certified financial planner and consumer advocate for the CFP Board in Washington, D.C., says that if given the chance, she'd tell her younger self not to open several store credit card accounts in a short period.
Blayney recalls going to retail stores and having sales clerks ask if she'd like to save 5 percent or 10 percent off the total bill by signing up for a new card. "Yes!" was often Blayney's answer. "It seemed like a no-brainer," she says.
If she could go back in time, Blayney says she should have questioned her need for yet another retail card. She eventually realized that the short-term savings could cause long-term pain. "When you have too many of those cards, it can be considered a negative for purposes of determining your credit score," she says. Successfully managing one or two credit cards is ideal. And by successful management, that means regularly charging small purchases and paying them off in full or within a month or two -- and always paying on time.
Blayney says a dip in credit score may not be a huge concern for older people who have paid off their mortgages and cars and aren't financing big purchases, but it is a concern for young people who are relying on good credit to qualify for student loans, take out mortgages and even land their first full-time jobs.
Blayney advises young adults to make raising their credit scores their top priority. "You should absolutely be on time with payments. And you want to pay more than the minimum amount due if you can," she says. Get your score "cleaned up as quickly as possible."
Once 18, young adults should pull copies of their credit report from all three big credit bureaus (Equifax, Experian and TransUnion) via AnnualCreditReport.com. Each is free, once a year. Check them, and dispute any credit report errors. It is the information on those credit reports that builds your credit scores.
To learn about how to build your FICO credit score, read "FICO's 5 factors: The components of a FICO credit score." Consumers should check their credit scores once a year as well to monitor their progress -- or descent. (You can order your FICO score for about $20 from myFICO.com.) The FICO score range is from 300 to 850, with anything above 740 being considered very good.
3. Delayed gratifications pays
Ted Bovard, a principal at Fort Capital Group in Pittsburgh, says that when he was younger, he had several friends who bought fancy cars. He admits it was tempting to do the same in order to keep up appearances. "I'd have liked to have a nicer car sooner," he says. "But I was the goofy kid that waited until he could afford it."
That was actually a good move. Bovard says that if he could go back in time, he would tell his younger self that being patient was worth it.
Bovard says many friends struggled to pay off the loans associated with their cars and other expenses for years. Because he didn't have those same obligations, he was able to pursue his goal of becoming a founder member of a company. "I didn't have a bunch of debt, so I was in a much better position," he says.
"For many students and recent graduates, it's easier to spend money first, and then figure out how to pay for it later," Bovard says. "Instead, think about how you can pay for something first, before you spend your money." It's usually worth it to wait, he says.
See related: 6 tips to use store credit cards the best way