New College Graduates Learn Reality Bites When it Comes to Personal Finances
(ARA) - Those screams coming from the recent class of 2001
college graduates may not be shouts of joy, but rather screams of frustration.
With each spring, an annual rite of passage takes place;
thousands of college graduates will be hitting the streets in search of their first
"real" job. But the "real" facts of life that often accompany the
exhilaration of landing a job are poor money management and more debt. The first
"real" paycheck is a very deceptive one. Most graduates feel "rich"
when in reality they are not even close. Approximately 65 percent of undergraduates are
already $13,000 in debt by the time they find their first job. (Source: 1997 Nellie Mae
The most common mistake that many new graduates make is not
planning their finances, as they make a transition to a higher income level. Many
graduates spend their money as though they are millionaires, instead of trying to get out
of debt. While many graduates skimped during college on little money to make ends meet,
actually living on a budget with a real paycheck can be difficult to grasp.
Financial planning is critical for recent graduates, says
Randy Schuldt, a vice president with IHateFinancialPlanning.com, a new Web site designed
for the three out of four Americans who hate financial planning.
IHateFinancialPlanning.com offers visitors financial information that reflects their needs
and station in life. IHateFinancialPlanning.com provides loan calculators, credit card
calculators, tips on how to create a solid financial plan as well as audio tips from Chris
Farrell, host of PBS's Right on the Money.
"I never had much money during school, so I really stuck
to a budget," says Tony Andersen of the Twin Cities. "All of a sudden I have a
huge paycheck and the first thing I did was buy a new Jeep. Looking back, I could've
purchased a used car and had money left over to pay off student loans. Now I'm in the
situation where I need to follow a very tight budget. I can't always go out with friends
or buy new clothes - I have to make do with what I have and pray for a raise."
The first time a newly, employed graduate touches their first
professional paycheck, visions of new cars and shopping sprees at the local mall start
dancing through their heads. For recent graduates, the old saying of "earn more,
spend more" usually holds true.
Schuldt and IHateFinancialPlanning.com offer 10 easy tips
that new college graduates should consider to begin establishing healthy money management
Track your spending. It's important to
understand exactly how you spend your money. Take all your recent tax stubs, checkbook
register and credit card bills and divide your expenses into categories, such as, savings,
rent, bills, insurance, food, utilities, entertainment and miscellaneous and track them in
a notebook for 60 days. It won't be long before you see exactly how you're spending. You
will probably be shocked, actually. But this exercise will help you understand how to
eliminate unwanted spending and how you can free up funds to invest.
Invest in a 401 (k). Some employers have a
waiting period before you can start investing in the 401 (k), but start as soon as you
can. Most employers provide a matching contribution, meaning they match your contribution
up to a certain percentage. That's free money! By not investing in the 401 (k), you're not
only passing up a golden opportunity to accumulate retirement funds, you are passing up
free money. Contribute up to the current allowable limits, because your contributions
automatically lower your taxable income.
Back to Black. We're not talking about
AC/DC. We're talking about getting out of debt and back onto sound financial ground. To
see black, pay off higher rate loans first (i.e. credit cards). Many recent college
graduates average 10 credit cards, charging everything from beer to books to pizzas.
Before they realize it, they have a hard time making the minimum payment. First step: cut
up the cards you no longer need and when they are paid off, make sure you call and cancel
Besides credit cards, many graduates have student loans that
must start being repaid after graduation. According to the 1997 Nellie Mae Foundation
survey, approximately 12 percent of a recent college graduate's monthly income goes toward
paying student loans. If you're having difficulty paying your loans, contact the loan
agency immediately. Most providers are willing to work out payment schedules that are
beneficial to both parties. Some loan providers reduce the percentage rate if your
payments are taken from direct deposits.
Emergencies. Stick to the rule "If you
can't pay cash, then you can't buy it." Have one credit card for personal emergencies
only and another for work expenses. Don't use them unless you absolutely need to. Also,
build up an emergencies-only savings account. Experts suggest saving an amount equal to
three months' salary for emergency car repairs, sudden travel or other emergencies.
Pay yourself first. That means, out of each
paycheck put $25 or $50 or so into your savings account or a mutual
fund. The goal is to create a healthy savings habit, and more importantly, begin
building funds to accomplish some of the dreams you want to accomplish in life. If you
have difficulty saving, try IHateFinancialPlanning.com's Instant Investor. Instant
Investor will automatically deduct a minimum of $25 from your checking or savings account
and invest it in a mutual fund. Experts say that financial success starts with how much
you save, not how much you earn.
Get a roommate. You have to pay rent,
utilities, food and sometimes parking. What was once a $650 a month apartment can easily
turn into $850 a month in living expenses. Instead, find a trustworthy roommate and split
the rent, utilities, parking and sometimes the groceries. Bring lunch to work. It's easy
to get caught up with coworkers going to lunch everyday. If you spend an average of $6 per
lunch and multiply that by 20 work days that equals $180 a month. By bringing your lunch
to work you could be investing $2,160 a year.
Take public transportation. Most employers
work with state transportation departments to provide employees with discount passes. A
monthly pass could cost you anywhere from $60-$80. On the other hand, if you drive to work
everyday, parking in ramps or lots could cost anywhere from $100-$300 a month, not to
forget car maintenance, insurance and gas.
Get a Second job. Consider taking on a
second job at a favorite store, such as the Gap or Banana Republic, which may provide an
employee clothing discount. Use the extra money you make to reduce your bills as fast as
Meet with a financial planner. Finally, get
some expert help. A financial planner can help you get off on the right foot, by helping
develop a long-term financial plan that will make your hard earned money work harder for
By starting a financial plan immediately after graduation,
recent graduates can start to develop effective, healthy money management habits that will
last a lifetime. These habits will help you reduce and avoid debt and make your money work
harder for you. For more information on managing your finances, visit
Remember, financial success is not determined by how much you
earn, rather by how much you save.
Courtesy of ARA Content, http://www.aracontent.com, e-mail: firstname.lastname@example.org
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