Graduating Into the Real World: Slash the Loans and Plan for the Future

The strains of the “Graduation March” are echoing from college campuses nationwide and recent grads are quickly making the transition from the sheltered world of campus life to the real world.

For many, this evolution will be their inaugural foray into the land of full-time jobs, car and rent payments, and--within six months--student loan payments. And if our best and brightest aren’t careful, it could be a very bumpy ride.

It’s no secret that while our future leaders are bright, articulate, and incredibly tech savvy, they’re not known for their financial literacy. A 2009 survey of recent grads by Charles Schwab found that almost half wished they knew more about the “importance of saving” and “living within a budget.”

And unfortunately, many grads start their real-world journey with two strikes against them: student loans and credit card debt. College seniors who graduated last year owed an average of $24,000 in student loan debt and an average of $3,000 in credit-card debt.

Here are four ways for new grads to get off to a great start financially, or right the ship before it gets too far off course:

Tip No. 1:  Set Up a Basic Financial Plan

Students should write down their short-term financial goals (like paying off credit card debt or saving for a car) as well as longer-term goals (like retirement or buying a house). As time progresses, students will be able to adjust their goals to reflect their current financial situation.

FBN Tool: How Does Inflation Impact My Standard Of Living?

Tip No. 2:  Set Up a Basic Monthly Spending Plan

It’s important for students to plan their monthly cash flow (what’s coming in and what’s being spent) to save for their goals and cover bills and discretionary expenses. There are many online tools that are easy to use that help track spending and build budgets. Establishing a spending plan is also the best way to stay out of credit card debt--assuming you follow the spending plan!  Which leads to Tip No.3…

FBN Tool: How Much Am I Spending?

Tip No. 3:  Be Cheap During Your First Year Post-Grad

Recent grads are used to small living quarters, eating cafeteria food and drinking cheap beer and best way for them to get ahead financially is to keep this mindset during the first year after graduation. Students should live cheaply; get a roommate (or live at home), and save as much as they possibly can (and don’t run up the credit card!).  Students can easily save 30-50% of your take-home pay if they’re really budget conscious, which will go a long way toward funding their goals or paying off credit cards or student loans.

(NOTE:  speaking of student loans, whatever you do, DO NOT default on your student loans. Make your monthly payments or seek deferment or forbearance if you have to, but whatever you do, don’t default--doing so can seriously damage your credit and keep you from being able to buy a car or home in the future.)

Tip No. 4:  Don’t Buy a New Car

The worst mistake students can make right out of school is buying a new car.  By “new” I mean brand-new--never been owned, with the new-car smell and “sweet” financing from a friendly local car dealer. New cars lose most of their value in the first two to three years, so they are terrible investments.  And don’t even think about leasing.

FBN Tool: How Long Will It Take To Pay Off My Credit Card?

Students who already have a car in decent shape should keep driving it (see Tip No. 3 above). Students in need of a car should buy a sensible used car that is eight to 10 years old, it will be MUCH cheaper and it won’t be financially constraining.

These basic tips will get students started on the road to financial success and make it whole lot easier to afford the trip back to campus for their five-year reunion.  Congratulations and good luck.

We want to know: What tips and advice do you have for recent college grads? Comment below!

Bryan Link is the CEO and co-founder of SimpliFi, Inc., an online consumer financial planning service. SimpliFi has won several awards and was named Fast Company’s Top 10 Most Innovative Companies in 2010. Bryan’s expertise in personal finance has led to him being featured in a variety of print and broadcast media, including ABC News, FOX Business and The Wall Street Journal.