Graduation is over, and classes are finished. Welcome to the real world, college grad. Now, how will you stay afloat in the "real world" when you have daily expenses and responsibilities? Budgeting is key.
You need to concentrate on preparing a savings plan that will aid in achieving short-term goals (e.g., purchasing a car) and long-term goals (e.g., retirement), according to Kris Alban, vice president of marketing for iGrad. Learn to look at your spending habits and decrease costs in order to avoid debt.
"Being financially healthy means being fully aware of the consequences of your spending decisions and choosing the decisions that are right for you," according to iGrad.
Jeremy Vohwinkle, the financial planning writer at About.com, says that budgeting doesn't have to be as painful and miserable as a root canal. Knowing how your money is being used will help you make better spending decisions. And budgeting can be fun and easy with online resources. Vohwinkle recommends Bundle and Mint.com. Linked up with your existing bank accounts, these free sites allow you to see your spending data. Carrie Schwab-Pomerantz, a certified financial planner and president of the Charles Schwab Foundation, says that most college grads lack knowledge on personal financing. It is key that you live within your means and follow an affordable lifestyle. Sticking to a budget will keep you out of debt, help you build savings for the future and help to reduce money anxieties.
When it comes to saving, create realistic short-term and long-term goals. It is important to have at least one savings account for keeping an emergency fund. Richele Messick, who works in corporate communications at Wells Fargo, says that an emergency account should contain enough money to cover three to six months' worth of living expenses. Life brings the unexpected, and medical emergencies and freak accidents can occur. With funding saved in an account, the extra expenses won't be so devastating to a budget. Automatic transfer can make saving even easier. Set a monthly direct transfer from a checking account to a savings account. Or if your company has direct deposit for paychecks, ask whether you can divide the amount between your checking and savings accounts.
Insurance goes along with being prepared for unexpected circumstances. Schwab-Pomerantz says that health insurance is essential. A serious injury or surgery could leave you stranded with thousands of dollars in medical bills. If you can't obtain a health policy through your employer, search for low-cost options. Auto insurance is needed for your car. In the long run, you will save money if an accident leads to bodily injuries or auto damage.
Credit cards are a great resource if used wisely. Vohwinkle says that opening credit card accounts can help a credit score if you avoid racking up debt on them. You want to maintain a good credit history. He recommends having at least one credit card and only swiping it occasionally. If you can use a credit card and pay off the outstanding amount, it will aid in building credit. Schwab-Pomerantz suggests looking for a no-fee, low-interest card. Make sure you understand the penalties and interest rates if you can't pay off the credit card's balance.
Even though retirement is far into the future, now is the perfect time for 20-somethings to start saving. If your company offers a 401(k) plan and matches contributions, take advantage of that great opportunity. Schwab-Pomerantz recommends putting away 10 percent of an income to start building a retirement fund. Roth IRAs also can be a beneficial early investment option, according to Alban.
As a college grad, you most likely will be loaded down with multiple types of debt, including student loans, car loans and credit cards. Vohwinkle says the key is to "prioritize the debt." Start with the loans that contain the highest interest rates. When it comes to student loans, be sure to know when payments begin and how often they need to be paid.
You also should seek information on personal finance and budgeting. Your parents can be great teaching resources for the basics of credit usage, budgeting tools and saving plans. You also can ask them about investing options, such as stocks, bonds and mutual funds.
You are now in charge of your own finances. Once you start receiving paychecks, it is your decision how to spend and save that money. And no matter what, you will have to live with the consequences.