NEW YORK (MainStreet) Well, you finally did it! You are now a college graduate. Chances are you're also broke, and probably depressed not so much about the end of classes, but more about having to grow up.
No more spending allowance from your parents (if your parents actually gave you any), no more sleeping late because you're hung over from "thirsty Thursday." You probably have to move back home, and the job that you grew up wishing for doesn't seem as close to attaining as it should. Even though most of this is probably true, it's not as awful as it sounds. Going through the stages of life is inevitable, and there are definitely ways to make it easier and enjoyable.
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So, the question remains: what should you be doing right now? It's time to get your life in order, starting with your finances. The key to surviving (and enjoying!) this transition is to look at the money you're making as a whole pie, and split it into pieces in order to fulfill all of your goals. Also, it's not just about saving for when you're 65! It can also be about saving to take a weekend trip with your friends without having to sacrifice eating lunch and dinner for two weeks. It's your money now, so you're going to want to pay attention for this one.
1. Yes, it's still "your" money. If you go to work every day and feel the need to save every penny and spend none, you will probably begin questioning your reasons for waking up every morning. To avoid the feeling of defeat, it's O.K. to allot a portion of your paycheck for your own leisure. What this means, basically, is to spend some of your earnings on yourself, but spend it wisely.
According to said Kevin Gallegos, finance expert and vice president of Phoenix Operations with Freedom Financial Network, you should spend on what will get you to your goals.
"The importance of saving takes on real meaning if you can envision how you'll use money you save," he said. "Write down your goals, which might range from a vacation in Europe to having time to train for a marathon. There's nothing wrong with including travel or other fun things on the list of what to spend money on. The key is to set the goals, and then budget around them. You'll modify these goals throughout life sometimes weekly, sometimes monthly, sometimes annually but keeping them front of mind will help guide finances."
It's O.K. to use your money toward fun, as long as you're being responsible about it. Make memories that will last forever, while making sure to stay within your budget plan.
2. Save for retirement. While retirement is still far off, it's nice to think that by the time you hit retirement age, you won't be obligated to continue working if it's not your preference. There are two main options for retirement savings: 401(K)s and Roth IRAs. If your job happens to offer participation in a 401(k), you should enroll as soon as you're eligible.
Miranda Reiter, certified financial planner at SheAndMoney, explains the importance of enrolling in your company's 401(k).
"First, the sooner we can get used to paycheck deductions, such as retirement contributions, the easier it is to contribute," she said. "However, when we wait until months after we've been receiving a set amount on payday, it can be hard to transition because you may feel as though you're taking a pay cut."
Also, Reiter notes, that you're leaving free money on the table if you don't contribute at least up to your company's 401(k) match amount.
"You'll want to get access as soon as possible to any of the free money your employer may be offering you through contribution matching," she said.
If your employer matches up to a certain percent of your 401(k), you're essentially missing out on extra money by not enrolling. However, if your company does not offer a 401(k), a Roth IRA is also a great option for saving. While the money for a 401(k) comes out of your pay check pre-tax, the money for a Roth IRA goes in post-tax and therefore you do not get taxed when you cash in on it at retirement age. Reiter also explains that "one of the biggest advantages that 20-somethings have over older savers is that their life right now is probably the least expensive it will ever be." While traveling and going out are things that are easily done without children and mortgages, saving is just as important, if not more.
3. Establish proper credit. Even though you may not be looking to purchase a new car or home yet, increasing your credit score is key at this stage in life in order to prepare for those big purchases.
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Randy Hopper, vice president of credit cards at Navy Federal Credit Union, provides a few tips on how to handle credit.
"Those with little or no credit can start to build their history with a secured card," Hopper said. "As they develop a credit history, they can open a regular card that offers greater rewards and requires no up-front deposit."
After that point, you need to be concerned about your debt-to-credit ratio. Hopper advises to keep your credit balance below 30% of the total credit line in order to avoid negatively impacting your credit score.
Credit scores can also be impacted when too many cards are opened too quickly, or when cards get closed. By doing your research for the right card, following these tips, and making payments on time, your credit score should be in great shape when it comes time to start making some big-time purchases.
4. Pay down debt, and keep it low. Michael Dubrow, content strategist for Moneytips.com, explains how pertinent it is for new graduates to start focusing on paying down any debt that they may have accumulated up until this point in their lives.
"Young adults should put as much money as they possibly can toward paying down their credit card balances, with the goal of paying off credit card debt in full as soon as possible," Dubrow says. "Then, credit card balances should be paid in full every month to avoid interest charges. Establishing this discipline in the 20s can help avoid a lifetime of debt problems."
Aside from credit cards, Dubrow also points out that other common causes of debt for 20-somethings include student loan debt and car loans. By training yourself to pay your bills on time, and preferably in full, early on, you're preparing yourself to continue the trend for the rest of your life.
5. Invest in yourself! No, this is not another "fun and leisure" portion, unfortunately. Investing in yourself refers to making purchases that will enhance and benefit your future. Dan McElwee, the executive vice president at Ventura Wealth Management, encourages new grads to do what they can with the money they have to increase their potential in the business world.
"Considering graduate school and advanced certificates, subscribing to publications that are relevant to your career path, and building a professional wardrobe can all pay dividends by helping to advance your career and earnings," explains McElwee.
Specifically, purchasing one or more decent suits, proper shoes, quality-grade resume paper, even a new computer with a carrying tote will all help you when you're entering the professional world, whether it's at an interview or at a potential job. Depending on your chosen field, it may also benefit you to pay to start a blog or create a website in order to display any published works or other skill samples.
--Written by Ciara Larkin for MainStreet