How to Manage Money | Tips for College Grads
5 Tips for New College Grads on How to Manage Money
The big day has finally arrived and now you are about to see what the real world has in store. One thing for sure, you’re about to assume a lot of responsibility. Some of you who haven’t yet found a job will probably move back in with your parents. Others who have already entered the workforce may have moved into your first apartment. Either way, you’re about to get your first taste of learning how to manage money.
These five important tips weren’t pulled out of the air… they come by many years of experience, known to many of us as the “school of hard knocks.”
Tip No. 1: Create a budget that’s workable
For many new graduates, those four years of skimping and doing without have taken their toll. When that first paycheck comes in, the temptation to spend is very strong, and a bad habit can develop quickly. The obvious solution is to learn how to manage money by creating a budget and taking control of your spending.
Many have no idea where or how to begin. One suggestion many planners agree on is to use the 50-30-20 rule. What that means is to spend no more that 50% of your take home pay on living expenses. Those would cover items such as rent, transportation, medical insurance, utilities, and food.
No more than 30% of your take home pay would cover items like cell phone, meals away from home, vacations, etc. The remaining 20% or more if possible, would cover savings and paying off student loans.
Tip No. 2: Don’t live beyond your means
Unfortunately, this problem doesn’t just happen to new graduates. In the USA, living beyond one’s means usually involves buying things that you don’t really need, using a credit card. For many, this is the hardest temptation to overcome as they learn how to manage money.
They see their friends and associates who have all of the nice things in life and out pops their credit card. Before you know it, the credit card(s) are maxed out and you’re just paying the minimum payment, and even that is very difficult.
Do not get into that bad habit. Carefully track your spending, including those expensive morning lattes. Use a free app like Mint and you’ll be able to see exactly where your money is going. What we suggest here is to cut expenses where ever possible and pay extra on the student loans.
Tip No. 3: Youth can take some financial risks
As you learn how to manage money, you will not be living from paycheck to paycheck. If you carefully create a workable budget and control your spending, you can now begin investing. We don’t mean gambling with penny stocks, but buying good investment grade securities.
Tip No. 4: Start saving for retirement now
Don’t make the mistake so many do by delaying saving for retirement. There are different ways available, but the key is to start now so that the funds can grow. If you’re fortunate enough to have an employer sponsored 401(k) plan, take advantage of it. Most employers will also contribute a matching amount and that is free money for you.
If there is no employer retirement plan, you should start your own. There are various types such as a Roth IRA which are easy to begin with. Start small if you have to, but do start now.
Tip No. 5: Plan ahead for the long term
There’s one thing in life that’s certain, and that is “what can go wrong will”. It’s impossible to predict, but very important that you be prepared. There may be expensive car repairs, medical expenses, or even a loss of your job.
For this reason, you need to set up an emergency fund. Financial planners suggest that the fund be large enough to cover 6 months of your living expenses. That may seem high, but if you lost your job, it won’t be.
We realize that for youth just starting out, and learning how to manage money, it’s hard to comprehend some of these financial plans that we recommend. However, speaking from experience of many years as a tax & accounting professional, we’ve seen the results of delaying saving for retirement or saving for emergencies. For those who did delay, their retirement years were not “golden” nor stress free.
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8 responses to “How to Manage Money | Tips for College Grads”
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“What can go wrong will.”… sounds like the idea of Murphy’s law I believe! Something my dad would always say. He always reminded me to prepare for the worst and be ready for anything. That meant not being stupid on my expenses and getting deep into debt when I was away for college. I also love how you pointed out on taking financial risks. People who live from paycheck to paycheck are thinking like employees, but if you try to make your money work for you, such as when you buy stocks… that’s a better way. With hard work and a tad bit of luck, that perspective will lead you to financial freedom.
Thanks for your comment Cheska. Sounds like your dad gave you some excellent advice. Borrow as little as possible and create a workable budget is the key.
I didn’t have the luxury of having all of my college costs paid for. My parents can’t afford it, so I have to borrow with student loans, and also work a part time job. I also enrolled in a small college where costs are lower. Good article and helpful tips.
Thanks for your comment Michael and kind remarks.
The best time to start saving is now. My parents always say that you can’t spend money that you don’t have. It might be hard to start saving but it is definitely a good idea. A good savings plan and a better track on spending might help. I just might get a job on the side to cater for the miscellaneous costs.
Thanks for your comment Manuel. Glad to see that you’re willing to help cover those expensive college costs.
I feel like we students need a little more guidance when it comes to investing. Everyone tells us to invest, but then they don’t tell us anything else! Where would be a good place to start for someone who has never invested before?
Thanks for your question Ashley. Students and other first time investors, need to be very careful. Here’s a very good article that will get you on the right track. https://www.forbes.com/sites/robertberger/2015/10/31/how-to-invest-for-the-very-first-time/#7f6ba3956a34