Since personal finance and budgeting is not often taught in grade school, a person doesn’t really learn about finance until college, if they’re lucky. In the instance where a person goes away to school, lives in a dorm or an apartment, and relies on a job or student loans to get by, they are getting a taste of what personal finance is truly like.
Unfortunately, some people think that taking out every loan available and spending all of that money is perfectly fine because work it won’t have to be paid back right away. Even if that’s the case, the loan will still have to be paid back. The CGS Team is sharing 5 things that newly-graduated college students need to know about finance in the real world.
#1: Don’t Wait to Pay off Your Student Loans
If your student loans are deferred for a certain amount of time, but you have the ability to start paying, then start paying! Even if you pay as little as $25 a month towards your loans, you are making it easier for your future self. Don’t let the high balance scare you into “thinking about it later”, the balance isn’t going anywhere. The sooner you start paying them down, the sooner you will be done with them.
#2: Start Contributing to a 401k or IRA Immediately
Most companies don’t start matching your 401k contribution until you have been employed for at least one year. That doesn’t mean you can’t start contributing to your 401k right when you get hired. The sooner you start saving for retirement, the more you will have when it’s time to retire.
In fact, a 25 year old who contributes $300/month until the age of 65 will have over $1 million dollars at the time of retirement (assuming the historical 8% growth rate). If you start contributing earlier, you will have more! Don’t know where to start? Check out 8 Things to Know about Your 401k Plan.
#3: Use a Budget and Track Your Spending
Most of us aren’t lucky enough to make major bucks fresh out of college. According to the National Association of Colleges and Employers, the class of 2015 graduates earn an annual salary of $50,219. While this number has been steadily increasing each year, the cost of living in the United States has gone up as well.
It’s crucial for college graduates to start using a budget and track spending. Building those positive financial habits now will make sure you can handle salary increases in the future. Read 5 Reasons to Start Tracking Your Spending for more insight.
#4: Start Saving for Emergencies
Nothing is guaranteed, including your job. Layoffs are a real and true part of the workforce. If you can start putting away money for emergencies, you will save yourself the stress of having to use credit when something happens.
Financial experts recommend individuals save at least 3-6 months’ worth of living expenses. In addition to losing your job, other financial emergencies can come up. It’s important to plan ahead and save so that you are able to handle whatever comes up.
#5: Never Settle
“Waiting for the perfect time to make the jump is usually futile, for there’s no moment that’s truly perfect. So even if you’re early in your corporate career, when a winning new-business idea comes along and sparks an entrepreneurial passion in you, carpe diem.” That quote came from CEO David Welman.
Fresh out of college, don’t settle for the first job you get. Do something that sparks passion in you, even if it’s starting your own business. Right now, you likely have the least amount of responsibility you will ever have, so don’t waste it.
Related: 7 Money Mistakes I Made in My 20s
Don’t let a lack of knowledge stop you from being financially free, especially when you’re fresh out of college. This is the time to establish those good financial habits that can set the tone for the rest of your life. College grads, what do you wish you knew about finance? Did you learn about your spending habits while in college? Leave a comment below to share.