New grads: Three financial rules to kick-start your 20s
As college seniors receive their diplomas and get ready for the next chapter, they will face many firsts: first corporate job, first time paying bills and living expenses and first time tackling debt.
All these life changes and new expenses may seem overwhelming. However, addressing financial concerns and learning to budget can help ease you into this next phase of life. While having that budget in place is a step in the right direction, don’t stop there. Following a few rules of thumb at the outset can help you to avoid making costly financial mistakes.
Pay yourself first. If you pay yourself first, your future self will thank you for it. This is of the utmost importance once you graduate and begin earning an income. Start paying yourself now and save for retirement by taking advantage of your company sponsored retirement plan. Aim to save 10 percent of each paycheck and increase it 1 percent each year. You won’t notice the difference missing in your monthly income and your savings will be better off in the long run. If your company doesn’t have a defined contribution plan, consider setting up a Roth IRA or traditional IRA.
Spend wisely on rent. When you graduate and find that dream job, you’ll likely want to move out on your own. However, be sure to not splurge on expensive housing. A good rule of thumb is to look for rent that is about 25 percent of your income, otherwise you may stretch your budget a bit thin. You must factor in other new expenses such as monthly bills that go along with the house, any transportation fees, groceries, etc., all while attempting to save and pay back student loans. Housing costs are fixed and you’ll likely be locked in for at least one year, so make sure you’re carefully considering what you can afford.
Follow your own financial path. When you graduate, everyone follows their own financial path, so don’t compare yours to someone else’s. Yes, your Instagram feed may be full of pictures of your former classmates going on European adventures but don’t let this influence your money making decisions. They may have the funds to do so at this moment, however that doesn’t mean your bank account can allow for it. You don’t know their financial situation, and you don’t see what isn’t portrayed in those pictures. It’s normal to want to spend once you have an income, however be mindful of your budget so you don’t dig yourself into even more debt. While a credit card can help you build credit, be careful of overspending and using it to fund a lifestyle you can’t afford.
While the transition period between college and the working world may seem a little confusing, with the right financial knowledge, any college grad can master life in the real world.