You’ve walked across the stage, and graduation is over. Now you’re inching your way into the world of adulthood equipped with working a 9-to-5 and paying bills. For the majority of post-college grads, handling their own finances is a new— and scary—experience. According to FinAid, graduating seniors leave college with an average of $23,000 in loan debt. Add to that rent, utilities, gas, and groceries, and it’s easy to dig yourself into a deep hole with the average entry-level salary. While surviving on a starting salary is difficult, it’s not impossible. Here are four tips from Darric N. Boyd, a Merrill Lynch certified financial expert, on getting (and keeping) a grip on your newfound finances.
First, pay yourself: “As far as savings go, you want to make sure that you are paying yourself,” Boyd says. Set aside a fixed amount each month in a savings account. By making savings and investment a fixed expense, such as rent or monthly bills, it will make it easier to continue to save. “If you carve out ten percent of your pay from your first job and do that for the rest of your career, you will end up with a very comfortable retirement” he says.
Delay gratification: Boyd reports that he often sees an “I deserve it” attitude from college grads. While graduating from college is an awesome accomplishment, Boyd warns against going crazy with newfound financial freedom your first job can bring. “The biggest mistake is buying the expensive car. There are two reasons why the new car can affect your wallet negatively,” Boyd explains. “First, paying a car note every month really affects your cash flow and can keep you on a tight budget for years. Second, you’re putting your money into a depreciated asset. You have to have some type of delayed gratification for those types of material items early on in your career. If you do it early, you can have a lot of nice material items later on in your career. It’s the one thing that can change from going paycheck to paycheck to building a savings portfolio.”
Establish credit: While some may want to avoid using credit cards because of the negative connotation that comes along with debt, Boyd advises college grads have one credit card in order to build good credit. “I recommend putting your monthly bills on the credit card and then paying it off at the end of every month,” Boyd says. “This will begin to build your credit.” Boyd advises against carrying an unnecessary balance and to pay everything on time. “I always tell people if you have good credit, it’s like saving money. You’re going to get the best rates on everything,” Boyd says. “When you buy a house, the rate can save you $60,000 to $70,000 over a lifetime.”
Take care of loans: The higher the rate on the loan, the faster you want to pay it off. “It’s called debt stacking,” Boyd says. “That’s when you line up your bills by interest rate, not by balance.” You would make the minimum payment to all of your bills except for the one that has the highest interest rate.” The quicker you pay it off, the better, but don’t pay it off in spite of saving, Boyd says. You want some equity because, as we’ve seen in this job market, you could lose your job, Boyd adds. “What you don’t want to do is have no equity or no savings, and have less debt. That doesn’t help you if you lose your job. It’s a careful balance.”