It is that time of year where college graduates enter a new phase of their lives. Yes that is me from 20 years ago after earning my Bachelor of Science in Business Administration from the University of Richmond. I can't believe that so much time has passed but I thought I would share 3 financial tips for recent college graduates because most people learn little to nothing about it in school -- which is pretty crazy to think that our kids aren't taught crucial life skills like finance but I will leave that topic to another day. Let's dive right in.
1) Budget (apps)
Everyone knows that they should have a budget but it is a painful process for 99% of us. The only way to know where you are spending your money is to keep track of it accurately. This is especially important to new graduates who may not be used to paying utility bills, insurance and more during their time at university.
The good news is that in today's technology enabled world, of course, there is an app for that. This should make it not only an easier process for new grads but it will enable them to still with it over time which is really the key. Two great apps are Mint and YNAB (You Need a Budget). Mint has been around for longer and allows you to see all your accounts in one place and to track your spending. YNAB makes you live within your means (or your actual income). While there is a subscription fee, it is said that the app is so effective that the average user pays off $500 in debt in the first month.
2) Start saving for retirement today
This may be hard to fathom when you just started working but it can make your road to retirement much easier. Even though retirement is decades away, you want to start saving something today. Remember to always take advantage of a company match. If you work for a large corporation that matches your 401k contribution, you have to do it. Those are bonus dollars that you never want to pass up on.
The reason why you need to start saving today is because of the power of compound interest. The more time you have to grow, the better. For example, if you have $10,000 in a savings account today and grow it at 10% per annum, you will pass the $1 million mark in 49 years! That's with no additional contributions over time! If you started 10 years later with that same $10,000. You would need to increase your rate of return to 12.6% to get to the same level and end point.
3) Limit your debt
This is a tough one because the class of 2017 is the most indebted graduating class ever. Last year, the average graduate had $37,172 in student loan debt, up 6% from the year before. Furthermore, 60% of college grads leave school with student loan debt. This is a burden that will take years to pay off so it is imperative to manage this wisely and limit additional debt if possible. Kerry Hannon writes for Forbes, "Debt is a dream killer."
If you have to incur additional debt, you should try to pay it down ASAP. Start with the higher interest products first. Don't let your credit cards carry balances because their interest rates are in the double-digits and will just crush you over time. Paying off your debt early will lower your interest rate expense and can save you money over the life of the loan.
What tips do you have for new graduates?