Personal Finance for College Graduates

Graduating college is an exciting time in your life.  You are finally on your own and facing many important decisions such as what career path to choose or where to relocate. Decisions made now can have a big impact on your potential income and living expenses.  If I could offer one piece of personal finance advice to a new college graduate it would be to start saving money as soon as possible.  Here are several other tips to get you on the road to financial success.

Choose your first job carefully.  Choosing a first job as a new college graduate is one of the most important career decisions you will ever make so it is important to take your time and do your due diligence.  The best way to make an informed decision is to make a list of factors to consider and weighting them based upon how important they are to you.  For instance, if opportunities for promotion and growth rank higher than job location for you, it would score higher.  Using a weighted system to evaluate job opportunities results in a more objective evaluation. Also, be sure to use your degree to your advantage. For example, you will have a good shot at an accounting career with a masters degree in accounting rather than settling for an associate degree.

Don't buy a new car.  The first thing many college graduates buy is a new car.  Big mistake.  By saddling yourself with debt right out of college you lock yourself into a monthly payment that will make it difficult to budget for other items.  New cars lose an average of 20%-30% in the first year so if you put down less than 30% you are potentially putting yourself in a negative equity situation.

Educate yourself about personal finance.  One of the best things you can do for your financial success is to learn as much as you can about money management.  A few recommended books are: The Automatic Millionaire by David Bach, Your Money Or Your Life by Joe Dominguez and Vicki Robin, and The Total Money Makeover by Dave Ramsey.  A few websites that I would recommend reading are:, The Consumerist, Kiplinger, and Wisebread.  Another great resource is the Wisebread- Top Personal Finance Blogs , a collection of the best personal finance blogs on the internet.

Enroll in a 401k for the maxiumum.  Many employers are now enrolling new hires automatically in 401k programs however the downside is that some programs set the contribution rate under 5%.  Perhaps the single most important financial decision you will ever make is how much you contribute to your retirement account.  As a new grad you have time on your side and the more you contribute now the faster your investment account will grow.  The maximum amount you can contribute to a 401K in 2012 is $17,000 and while you may not be able to contribute the maximum right out of college, contributing 12%-15% should be your goal.  You should invest at least the minimum to qualify for any employer match and depending on your age, select the Roth 401k if you have the option.

Use Credit Cards wisely.  One of the biggest mistakes you can make as a new college graduate is to develop an appetite for debt.  Credit Cards if used wisely can provide benefits such as loyalty rewards, insurance coverage, buyer protection, and can help improve your credit rating.  Credit cards can also lead to expensive fees and damaged credit so they should be used with care.  My recommendation would be to save up for major purchases and pay with cash.  The next best alternative is to take advantage of no-interest financing.

Start an emergency fund.  An emergency fund is for unexpected expenses such as an illness, loss of job, or a major expense.  Set aside an amount each month so that you will be able to have a minimum of $1000 by the end of the first year.   One of the key benefits of an emergency fund is that you are less likely to rely on a credit card to pay for emergency expenses.

Start payments on your student loans.  As a new grad you most likely will have school related debt that you will need to start paying. Get in the habit of paying your student loan when you are writing checks for your other monthly bills. While you're at it, make sure you have enough checks on hand by ordering checks in time so you don't run out. By making payments on your loan obligation you are building a credit history which will be necessary down the road when you are in a position to buy a home.  Unfortunately the consequences for not repaying your student loans are severe.  The IRS has the authority to garnish your tax refunds, and the Department of Education has the authority to garnish your paycheck.  Your credit can be adversely affected for many years as well.

Don't buy a home.  Owning a home is typically more expensive than renting when you take into all the costs of home ownership.  One of the most underestimated costs of homeownership is maintenance.  The average dishwasher costs $400 and you can expect to pay another $150 for installation.  A new washer and dryer will set you back around $1500 and a new refrigerator $800-$2500.  A new air conditioning system will cost between $4000-$8000.  Are you beginning to understand how expensive owning a home can be?

Get Insurance coverage as soon as possible.  As a recent college  graduate you have the option of remaining on your Parent's health insurance policy until you reach age 26.  If that is not an option, your employer is required to make health insurance coverage available to you and you should enroll so that you are covered for dental, vision, and medical coverage.  A trip to the emergency room can cost thousands of dollars so the value of having health insurance coverage can not be over stated.

What personal finance advice would you give a recent college graduate?

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