If you’re graduating soon, your formal classroom education will be coming to an end. But your financial education will be just beginning.
You learned a lot in college, both in and out of the classroom, but you probably didn’t take a class that taught you how to properly manage your money.
While we won’t be able to give you a complete education in one article, we can point you in the right direction. Here are five financial tips you need to know, that will help you be ready for the challenges ahead.
1. Debt is NOT Your Friend!
This is one of those ideas that should be firmly planted in your mind. If you have been using student loans to pay for your education, you might see debt as somehow benign, or yes, even as a friend. This is a toxic connection! Now that you’re out of school, you should begin seeing debt as something that you need to get rid of.
All debt can be a weight on your future financial progress so it’s important you try to reduce it as quickly as possible. For starters, avoid taking on new debt, especially expensive credit card debt. Debt is a reduction of your cash flow – of your income – and the sooner you can rid yourself of it, the sooner you will gain total control over your paycheck.
2. You Need a Budget
A budget is like creating a road map for your income and expenses. If you don’t have one, it’s like driving in fog on a dark night. But if you do have one, you’ll always know exactly where you’re going and even approximately when you’ll get there. That’s because you’ll be in control.
Control is important because everything in your financial life will flow from it. The less money you can spend, the more you’ll have available to save, invest or to pay off debt. And as you increase your allocations into those areas, your financial life will really begin to improve in substantive ways.
3. Start Saving Today
The only way to get ahead in life is through saving. If you earn a dollar today and spend a dollar, you’re no better off than you were yesterday. If you’re able to save a quarter or fifty cents, that’s money you can use in the future. As you accumulate more savings, your savings can start to earn you money and that’s how you get ahead. If you’re constantly trading time for money, you’re going to eventually run out of time.
The journey of life always goes better when you have some money in reserve. Reserves will not only provide you with the financial resources that you need to do what you want in life, but it also provides a cushion when something unexpected comes up.
Even if you can’t save large amounts of money, you can start by saving whatever you can. Even if it’s just $20 a week, that can add up to over $1,000 in the course of a year. And once you get started, it will simply be a matter of increasing your savings level to produce a bigger bank balance. You can do this by saving future pay increases that you get, along with any bonuses that you might receive.
At a minimum, you should plan to have an emergency fund. This is a bank account that will be used only at times when you experience unexpected expenses, or even an income disruption. You should plan to have a minimum of three months worth of living expenses in your emergency fund. Once you have this account in place, you will find yourself better able to cope with whatever life throws at you.
Think of it as the foundation on which all other savings and investments are built.
4. Keep Learning
Your education shouldn’t end when you graduate. The business world is constantly changing so take full advantage of your learning opportunities, whether it’s taking a course, starting a new degree, or just taking on new responsibilities at work. If you stagnate in your development, you’ll stagnate in your career as well.
Growth only comes about when you challenge yourself, and that will mean stepping outside your comfort zone. You have to be prepared to do this, if you hope to make steady progress in your career.
5. Start Saving For Retirement
This correlates to the idea of start saving but bears mentioning because you probably aren’t thinking about retirement right now. When you’re in your twenties, it’s hard to think about life in your fifties and sixties. You are, however, in the best position to save for the future because you have many years of appreciation ahead of use. Take advantage of the stock market, take advantage of other investment opportunities, and learn to take advantage of your most valuable asset – time.
Here’s another important point to remember – if you want to retire early someday, you’ll need to save up a nest egg to do it. Even if you don’t plan to retire early, the advantage that you will gain from the money that you save in your twenties will allow you to reduce how much you have to save as you get older.
Congratulations on finishing your education, now it’s time for another degree.