So you finally have that college degree in hand. Congratulations! And condolences.
Like many recent college graduates, you may be shouldering a mountain of school debt. And the job market is none too wonderful. But a job will come your way sooner or later, along with an apartment and maybe a car, some credit card offers and so on. Here, then, are a few suggestions for giving your new financial life a sound foundation.
Most importantly, keep debt to a minimum. Ideally, debt should be used for only two purposes: buying a home and getting an education. Without a mortgage, you’d be 50 before you could save enough for a home. And an education is such a valuable investment it’s worth borrowing to pay for it.
What about a car? A vehicle may be a necessity, but anything more than basic transportation is a luxury, and it’s not wise to borrow for luxuries. Today’s cars and trucks can easily last 10 to 15 years. You should be able to find a safe and reliable used vehicle for $5,000 or less.
Many young people resort to leasing vehicles because monthly payments are lower than those on a new-car purchase. But with leases, you’re never off the hook. A lease is really just a loan for renting a vehicle for a few years, after which you have to repeat the process.
Once you’re employed, start an aggressive program of paying off older debts. Start with those charging the highest interest rates, like credit cards. The Accelerated Debt Payoff Calculator will help you devise a strategy. If necessary, pay only the minimum on school loans, since the interest rates are generally low.
As soon as you can, start saving for a home down payment, children’s education and your retirement. If your employer offers a 401(k) or similar plan, contribute at least enough to get the company’s maximum matching contribution, if there is one. Terms vary, but many employers will put in 50 cents to a dollar for every dollar the employer contributes, up to 5% or 6% of the employee’s salary. Not getting that full match is like turning down a raise.