Ok, you have mastered the financial skills of a college student—credit cards, part-time jobs, financial aid, etc.—and it is time to kick things up a notch. (By the way, if you have not mastered those skills, you can get a refresher here.) You will soon be embarking on a new post-graduate phase of life that will present new financial challenges such as:
• Paying off your undergraduate student loans
• Financing graduate or professional school
• Seeking life and health insurance coverage
• Negotiating a salary for a full-time position
• Saving and investing
• Buying a first home, with home loan
There is a lot written on all these topics and you may not face all these challenges immediately after graduation. Right now you just need to get started soaking in some basics. Here are:
Four Things You Need to Know about Money Management
Thing#1 Money does not grow on trees.
Thing#2 A penny saved is a penny earned.
Thing#3 Neither a borrower nor a lender be.
Oops! That was not the right list. That is a list of money-related adages that may or may not be the least bit helpful to you in real life!
Here’s the short list of behaviors that are at the heart of money management for the college graduate:
Thing #1 Track your money flow.
You must know how much is coming in, from what sources, and when. And you must know what expenses you must meet from that money. And you must know how much you have saved and where. This may sound obvious, but it takes some work. If you do not do this, the consequences can be serious, including an overdrawn checking account, unpaid bills, or no money to pay for food and essentials. Spreadsheets are handy, but any tool that works for you is good, even if you scrawl on the margins of takeout menus.
HOT TIP: “Mint” is a terrific and free smartphone app for tracking your money that makes it almost painless. The New York Times has described Mint as “Your financial situation, in the palm of your hand.” It is particularly user friendly for the young person starting out.
Thing #2 Save first for an emergency fund.
Financial planning experts agree that as soon as you can, you should start setting money aside for emergencies. Once you have a steady income, a percentage of that paycheck needs to go into building a fund worth six months to a year of salary. This is your “cushion” in life for bumps in the road, like your car needing huge expensive repairs, big medical costs, being laid off from your job, etc. You need this before you start saving for a house, a vacation, or a new car. It is fundamental to being a self-sufficient adult.
Thing #3 Pay off student loans on time and avoid new ones if possible.
If you needed to rely on student loans during your undergraduate years, you will have to start paying them back about six months after graduation, unless you are attending graduate or professional school. It is essential to plan for this. Even though college may seem very much in the rear view mirror at that point, defaulting on student loan obligations is a very bad idea. Among other things, it will wreck your credit rating (see Thing #4 below).
And if you have undergraduate student loan balances, you would be wise to explore other (non-loan) means of funding graduate or professional courses. Those strategies include employer tuition remission, assistantships, fellowships, and part-time study while working at paid employment.
Thing #4 Build and maintain a positive credit history.
Your credit history is a lot like your feedback score on eBay. It is a quantitative measure of your reliability. To have a high credit rating, borrow money and pay it back on time. With a low credit rating, you may not be able to borrow at all or you may have to pay exorbitant interest rates. You may even have difficulty renting an apartment. It is very difficult to repair a poor credit rating. And yes, student loan repayment does affect your credit rating.
Financial Smarts@UMBC: A Great New Resource
UMBC has recently launched a new site to help students enhance their financial skills. It covers credit, budgeting, investing, job-seeking, and many other topics for students, including those nearing graduation. There are videos, links to many relevant sources, and much more. Check it out here.
RECAP OF REALLY HELPFUL LINKS
Feed the Pig (brought to you by the America Institute of Certified Public Accountants)
A Beginner’s Guide to Repaying Student Loans (in NY Times, May 16, 2014)
Student Loan Repayment Calculator (NY Times, May 16, 2014)
Extra Credit Discussion Question
Do you have any strategies for saving money that work well for you? Please share your thoughts in the Comments section below.