Here’s what I wish every graduate knew about money:
It’s up to you to watch your overhead. If you want finances that work, you’ll need to limit your “must haves”–rent, food, utilities, gas, minimum loan payments and insurance premiums–to no more than half your after-tax income. Some grads blow 40% to 50% just on rent in high-cost areas, which means they’re guaranteed to struggle to make ends meet.
Ditch that credit card debt. It’s toxic, and you want it out of your life. The smartest habit you can develop is paying your credit cards in full each and every month of your life.
Stretch out the federal loans, pay off the private. Federal student loan debt is cheap and flexible, so it’s okay to consolidate it into a loan for the longest possible term (up to 30 years if you owe enough) to minimize your payments. Concentrate instead on paying off that private student loan debt, which is far more expensive and offers fewer options if you get into a financial jam.
Start contributing to your retirement. Yup, the market’s scary, but you’ll need stocks’ inflation-beating returns if you want to retire someday. And procrastination will hurt you big time. Someone who starts saving for retirement at 22 can wind up with a 30% bigger nest egg than someone who waits just 5 years to start. Sign up for a 401(k) if you’re eligible; otherwise, start contributing to a Roth. (You probably aren’t in a high-enough tax bracket to get much of a break from contributing to a traditional IRA, and Roth contributions, though not tax-deductible, grow tax free for retirement.)
Weave your safety net. You’ll want enough cash and access to credit to tide you over in an emergency. Just $500 in the bank is a good start; after you get the cards paid off and get signed up for retirement, start building up that emergency fund.