My son has recently graduated from University and has been lucky enough to secure his first job (actually, he’s worked really hard to get it both in his degree and through the job interview process, but that’s another story)
On his graduation day, I had a think about when I graduated and got my first job post-graduation – what I would do differently and maybe what advice I could pass on.
Could I put together a set of money management tips for new graduates, specifically aiming to get them on the right financial footing when they started their career?
Yes, was the answer, and here it is!
Money Management Tips for New Graduates (Intro)
Many people who graduated years ago probably wish they could go back and do things differently.
Indeed, most financial challenges can be avoided by doing things in the right way from the start, and adopting healthy financial habits early can make your future a lot easier and more enjoyable.
On the other hand, unhealthy financial habits can create challenges that take years of work to fully recover.
So, I sat down with my son, and here is what we came up with …. our “10 Money Management Tips for New Graduates”
1. Read a Basic Book on Personal Finance.
Everything starts with the basics so it makes sense to start from the beginning
Pick a simple book on personal finance and get familiar with the basics
Get a good book on this topic, read all about it, see how it applies to you, and take action
One good place to start might be anything by Dave Ramsey
2. Create (and Manage) a Simple Personal Budget.
Consider all your money coming in (salary, benefits etc) and then put together a budget that makes sense for your income and expenses.
Keep it simple – a piece of paper and a pen or a simple spreadsheet will do.
Remember to set aside some money for savings and investing each month.
3. Do Your Best to Avoid Debt.
Poor spending habits can cause challenging situations quickly.
Avoid saddling yourself with debt.
A possible exception is taking out a loan to buy a home.
Debts are dream killers – they take years to resolve and can prevent you from doing what you really want to do later in life.
4. Reduce Your Current Debt and Build Your Credit Score
Two tips for the price of one!
Before getting saddled with a mortgage and the expense of children, work on your current debts
Few things feel better than being debt-free.
Your debt is a barrier to fully enjoying your future.
Set up a plan to get out of debt.
And whilst you are taking actions to get out of debt, look at building your credit score
So when you do come to apply for that mortgage, or the mobile phone in your own name, it should be straightforward
5. Create an Emergency Fund.
Start with the goal of setting aside three months of living expenses.
If you should ever require it, you’ll be prepared and grateful to have it.
6. Begin Investing as Soon as Possible.
The greatest financial leverage young adults have is time.
Even small investments can grow into incredible sums given enough time.
Educate yourself about stocks and bonds and get started today.
7. Join Your Companies Pension Scheme.
In the US it is a 401(k), in the UK it is a pension scheme.
It’s hard to find a better deal than a pension scheme available through your employer where the employer matches (or betters) your personal contribution.
And leave your pension fund alone – you will be grateful you did later in life.
And while you are about it, it is worth checking out all the benefits you can get if ypu are lucky enough to secure a job post-graduation.
Which leads on to the next tip …..
8. Secure the Right Insurance For You.
There are many types of insurance and the insurance you need will vary from country to country
In the UK medical insurance isn’t necessarily essential because of the fine job the NHS does.
However, no country has higher medical costs than the US and because of this, many bankruptcies are due to medical expenses.
Illnesses and accidents happen, so be prepared.
You may also want to consider life insurance, personal accident insurance, but some of this may be covered by your work benefits package, so do your research and work out what is best for you
9. Spend Your Money on Worthwhile Experiences.
You can’t just save like a miser.
Life is short, so it’s really important that you get out and enjoy it.
It’s okay to spend some money on enjoyable experiences without being afraid, as long as that expense is in the context of your accounted for monthly spending
After all, enjoying yourself is one of the big reasons you earn money in the first place.
10. Write a 5 Year Financial Plan (Set Goals)
It’s difficult to know what you need without knowing where you are heading, so think about a 5-year plan
This should put all your financial actions into context
Set some simple goals such as
- Earn xxx by dddd
- By dddd I want to be promoted to yyyyy
- By dddd I want to have bought my first house
And then just spend a bit of time working out how you are going to reach those goals
Money Management Tips for New Graduates – Summary
To Sum Up…
These money management tips for new graduates are really all about good habits started early, and carried out consistently so that they will quickly become a habit, and over time they will grow
- Avoid the many pitfalls of developing poor personal finance habits.
- Mistakes made at a young age are recoverable, but the entire experience can still be extremely challenging.
- Good habits ensure good outcomes.
- Your financial future can be great if you’re willing to put a smart plan into action right now.
- There’s no reason to repeat the mistakes of others.
- Implement these 10 tips and you’ll find your financial life will have a minimal amount of drama and challenges.