Money 101 for college grads
The real world—and the financial responsibilities that come with it—can quickly overwhelm you if you’re a recent college grad. Especially if you don’t know what you’re doing. This crash course on personal finance is for people just like you. Think of it as not just a guide, but a guide to guides, all courtesy of my site. So get excited. Then read on, click those links, and good luck!
Where to live
You may be happy to leave dorm life behind, but have you looked at rents lately? Reclaiming your bedroom back home may seem like a step backward, but when done right, it can be a great financial move for the future. But make sure you and your parents are on the same page first. Sure, they want to help, but they should consider how this may endanger their own finances. If you decide a boomerang is the best option, make a contract that outlines your (temporary) living arrangement. Having it in writing makes a difficult confrontation with your parents less likely down the road. Once you’re back home, start to save up for your own rental. (Cleaning out your room can also raise some extra cash.) When it’s time to fly the nest (again), you’ll need my five ways to save on moving and five pointers for first-time renters. Years from now, when you’ve got down-payment money saved, you can tackle the rent vs. buy question and eventually check out my guide to home buying.
How to save
When I speak to young people about money, I’m often asked: “Where do I start?” It’s a fundamental question for anyone trying to pay down student debt and credit card debt while also trying to save money, whether for the short term (an emergency fund) or the long term (retirement). The key is knowing in what order to tackle debt and sock away cash. For this, see my flow chart of your saving and spending priorities. Save by siphoning off a share of each paycheck into a combination of your 401(k) account at work, an IRA that you set up yourself, and a high-yield savings account that covers at least three-to-six months of living expenses in case of emergency. How much? I recommend at least 10% to 15% of your salary—aim high!
How to spend smart
Managing money after college is inevitably more complicated than it was on campus. An app that tracks spending can help, and so can apps that help you automate your saving and investing. (Just do the research; fees can quickly add up.) You’ll probably need a credit card at this stage of your life, so read my guide to establishing credit and securing your first card. Try to avoid common credit card mistakes, such as carrying a balance on your card. If you think paying interest will help you build a credit history, you’re wrong. Your friends—slacker roommates, mooching buddies, or a big-spending entourage—can present their own challenges to your budget. So can purchases large (a car—I recommend a lightly used one) and small (your dozens of subscription services).
How to build a career
You need income to make any of the above happen. Although you’re entering a strong job market, there are some things you should know as a recent college graduate. First of all, in spite of what you hear about the booming gig economy, side hustles are not all they’re exalted to be. (Plus, freelancing requires special considerations for paying taxes and saving for retirement.) Even if you’re a freelancer scrapping together gigs, you need to learn some key career-building skills: how to create a network of professional relationships (from scratch) and how to negotiate for a better salary. In addition, nine-to-fivers need to know how to quit a job without burning bridges, or how to pick up the pieces after a layoff or even a firing. Oh, and whether it’s through your work or as a freelancer, get health insurance. (Consider it “bankruptcy insurance” against an expensive health crisis.)
Finally, I’ve got advice for the particular personal finance challenges faced by LGBTQ people and undocumented immigrants—as well as women everywhere.
And while I’m at it, let’s not forget about my best-selling guide, Get a Financial Life: Personal Finance in Your Twenties and Thirties, for deeper dives into all of the above. Parents, it also makes a great gift for your recent college graduate!
