It's important to get off to a good start
Graduates Need Solid Financial Habits
by Bill Hardekopf
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"Real-World" Money Rules for Recent College Grads
Thousands of college graduates are now beginning the rest of their lives. With that step, many take on financial independence.
Despite the many years of school, there are financial dangers ahead for graduates who are uneducated and inexperienced about money. Now is the time for graduates to make sure that they are prepared to take control of finances, credit scores and even debt.
Living on a budget and managing money is not something young adults should learn from life experiences. The mistakes they make can have costly and long-lasting consequences. "I didn't know" won't be an acceptable excuse for late payments or overdrawing a checking account.
Here are some tips on how college graduates can get a good financial start:
- Make a budget and put every dollar in place. Start with your net income, which is your income once taxes, healthcare, and retirement are taken out. Don't underestimate expenses. Track your spending for a month or two to get an accurate understanding of your expenses and where your money goes.
- Start saving immediately from every paycheck, even if it is only a small amount. Open a retirement account at work or your own IRA. Time and compounding interest will help your small amount grow into significant savings by retirement.
- Open a separate savings account to save for an emergency fund. The goal should be three months of income. If you lose your job or have sudden, unexpected expenses, your emergency fund (not your credit card) should be your safety net. Using loans to pay for an emergency simply adds to the cost of the emergency.
- Pay every one of your bills on time. Late payments are often responsible for a significant drop in your credit score.
- Set a payment schedule. If you are not disciplined in paying bills, it is easy to misplace a bill or pay it late. This can be punished by late fees and lower credit scores. The easiest way for young people to pay bills is to do so online with scheduled reminders for payments.
- Pay off your credit card debt as soon as possible. If you are carrying a balance on your card, do not put any new purchases on your credit card. If you can't pay for it with cash, you can't afford it, so don't buy it.
- Monitor your credit history with free annual credit reports through AnnualCreditReport.com. You can get a free credit report from each of the three credit agencies (Equifax, TransUnion, and Experian) every year.
- Credit scores replace test scores, and you need to work hard to build a good credit score. Lenders use this credit score to help determine how likely you are to pay a loan when it is due. It is their way of planning for the risk they take when giving you a loan. The higher your score, the lower your perceived risk of default and the lower your interest rate. Your credit score is used for all types of loans (credit card, mortgage, auto) but also could be used by an insurance company, landlord or potential employer.
Bill Hardekopf is CEO of LowCards.com, a site that simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card.
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