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The following is a guest post from my buddy Jason at Work Save Live. He’s an awesome financial blogger who’s blog rocks far more than mine. Go check out his site! (after reading his article here, of course 🙂 ) To learn more about guest posting on iHeartBudgets, please contact me.
Many college graduates push through four years of a degree program based on the unspoken promise of a pot of gold at the end of the rainbow. Not every college student has aspirations of immediate wealth, but certainly everyone wants to come out of college with a job. What many graduates fail to realize is that it isn’t always that simple. Often, you have to move up from a low-paying, entry-level job even as you accumulate expenses like a first apartment, transportation and payments on student loans.
Grim reality aside, recent college graduates can still function in the world and can even save money and begin to build wealth for the future. Here are three financial tips for the first few years as you get started on your journey in the real world:
Get-Rich-Quick Schemes Rarely Work
Financial advisers will tell you that get-rich-quick schemes never work, but that’s not entirely true (only 99.9% true). There is an occasional needle of success in the haystack. The problem is that you could spend years and a lot of hard work looking for that one strike of lightning. In reality, figuring out how to become rich is fairly simply: it takes decades of living on less than you make, saving and investing month after month, and gradually building a 10,000 foot high building brick-by-brick (figuratively speaking). To build wealth for the future, you need to:
• Save money now
• Make good spending decisions
• Be aware of your credit score
• Understand all of your debt
• Strive to pay off debt as fast as possible
These sound like large endeavors, but they are actually small life-style choices. Skip the meal out tonight and make a healthy meal at home. Stop buying coffee at the café every morning and bank $20 or more each week. Stop using credit cards and only buy luxury items you can pay cash for. These are all little things that can make you rich in the long run.
Building or Repairing Credit
Some students come out of college already in the hole because they used credit cards to cover college expenses, made bad financial choices over the years (as I did), or took out boatloads of student loans (as I did as well). If you’ve yet to establish your credit, have bad credit, or need to work on building your credit, then check out bad credit credit cards. Instead of having an unsecured line of credit, you’ll be required to put a “deposit” down which will be used as collateral for the credit card company but will also act as your initial credit limit. After your credit line has been established, simply make your payments each month (or preferably pay the balance of the card each month), build your credit, and cancel the card in 6-12 months when your credit is established and get your “deposit” money back.
Usually, these types of cards offer little in the way of perks and may come with an annual fee. If this is the only credit you can get, however, take it and use it wisely. Make small, necessary purchases with the card, such as fuel. Never charge more than you can pay off each month. As you develop a history of responsible use, you may qualify for a better deal with that credit card company or you can switch to another company that is willing to offer credit now that your FICO score is up.
Don’t Forget About Life Insurance
While you may not need life insurance as soon as you graduate, it is a good idea to learn how does life insurance work and educate yourself on the topic. If you’re single and don’t carry substantial amounts of co-signed debt, then don’t worry about buying any life insurance as of this moment. However, if you’re married or if marriage is in your near future, then educate yourself on the ins-and-outs of life insurance. Once you know enough to be dangerous, go shop some rates on 20 or 30-year term life insurance for 10-15 times you annual income.
These are just some tips that will help you overcome college debt and build wealth for the future. As you move into a professional environment, you should also consider things like 401(k)s and IRAs. Talk with your human resources representative to find out what your company does to help employees save for the future.
Jason is the founder of WorkSaveLive where he educates his readers on how to save money, pay down debt, and build wealth.
Thanks for these tips, Jason. Out of college, I was expecting a high-paying job (even with my 2-year art degree, LoL), but it didn’t pan out that way. I got a $14 an hour job and had to make do. Luckily I didn’t dig myself into TOO much credit card debt, but I definitely piled up the student loans. They key to making it happen for me was having a sweet budget, and goals. I avoided any get-rich-quick scheme (was approached by several MLM type companies), made consistent payments on all SL debt and bills (which built my credit), and jumped on the life insurance once we got pregnant. I definitely wish I had done some things differently (like paying for student loans WHILE in school), but I have dug myself out of a majority of our debt and have the hindsight to show others how to avoid my mistakes.
Thanks again for sharing!
I’m totally with you, Jake! I actually went to a few seminars for MLM schemes and almost was dump enough to sign up for one. It’s ridiculous the types of makes you’ll make if you’re trying to beat the system and build wealth fast.
there is no get rich scheme that works, but right out of college is the time to start investing aggressively, you have time on your side and you can take risks you won’t be able to afford in your 40s or 50s.
If I had to do things over again, I certainly wouldn’t have cashed out my 401(k) after leaving my first employer at 21. I had about $4,000 in the account and it would be worth quite a bit now (and projected to worth a lot more in the future). It’s interesting the lessons we learn over the years.
I was completely ignorant of what starting salaries would be for political science majors when I finished college (not much!). I also didn’t realize how much money would come out for taxes, health insurance etc. Add the student loan payments to that and I was in a pretty rough financial spot.
It’s really hard for some single men/women to grasp how difficult it really is to live off one income. I know I was coaching a teacher awhile back that had just gotten out of school, and he was very upset to think that he did everything he was supposed to: get a college degree and find a “stable” job, and it all was for naught. He still needed to live at home because his paycheck just wasn’t enough to cover everything.
Out of University I had no debt but if I did I’d be getting rid of that as fast as I could. Most of my money went to buy my first home but I wish I put a bit more into retirement along the way even though I was saving.
Man, graduation with no debt is WEIRD! In a good way 🙂 Nice work.
These are all good tips, Jason~
Three things I wished I had done in college are a) pick a major that would actually make me employable in a good paying job (I majored in Psychology) b) work in my field while in college and c) get firmly acquainted with my college’s career counseling and let them help me find a job.
Yup, need to hope on the BLS site and gets the real salary averages before picking!
When choosing a major, you really need to do something you will enjoy doing the rest of your life. I used to be a pre-med major in College but was always fascinated with computers. Go figure I majored in a life science major and I am now in computer programming.
How do you know what you would enjoy the rest of your life? That’s a BIG decision for such a young person. I struggled with this as well.
Jacob- While Jason’s blog is pretty kick ass don’t doubt your own abilities dude, you blog is pretty awesome. One of the first 3 PF blogs I ever followed, before I even knew the extent of the pf community.
Jason- I was just thinking this morning about what I could have accomplished even investing as little as $50 a month from the time I had my first job at 15…it makes me want to vomit…but now I know and can help my kids with their futures. Some mistakes need to be made in order to learn. Ces’t la vie I guess. I was lucky graduating from a program that granted direct access to a well paying job in a very secure field (dentistry). Makes my debt worth it in my eyes.
Awww, thanks Catherine 🙂
And yea, I know about looking back with regret. I blew through $100k in less than 3 years. UGH!
Wealth building doesn’t always takes decades! I’d say the bare minimum would be about one solid decade of putting your nose to the grindstone and saving almost every bit of pay that doesn’t go towards essentials. I’m on a 7-year-to-financial-independence plan now!
Dave Ramsey calls this “Focused Intensity”. It’s sometimes a bit strict for my taste, but if you start young, you can set yourself up for LIFE with some real financial discipline.
If I could go back, I’d only want to re-do the money side of college. I was an absolute mess, and I’m still kicking myself a bit for getting myself into such a mess. That being said, I’m also thankful that if I had to make money mistakes, at least I did it while young enough to turn things around!
Yea, I know all about being dumb with a LOT of money at a yong age 😉
If I had it to do over again, I would have paid off debt sooner and avoided taking on more debt. Kill those loans before you buy other stuff!!
Yes, all loans need to die a quick death!
College kids need to accept the fact that they are going to be broke.. And they probably arent going to be able to afford much of anything while they are there.. But it isnt worth running up credit card debt that will hold you down upon graduating
Yes, lifestyle inflation should NEVER be a thing after graduation. If anything, you may need to deflate a bit 🙂
These are wonderful tips. Most students think that after they graduate, things would be a lot easier financially and they end up getting disappointed. They fail to realize that they will again undergo another process towards achieving financial stability. It requires a lot of patience and responsibility more than what they have when they are still attending school.
It’s all about having a budget, I believe. Who cares what you thought you’d make. When you do get a job, budget around what you actually take home, and make it work. And take all that extra cash to pay off any debt before anything else. Craigslist is your friend 🙂
Simply spending less than you make in order to save or invest the difference will make the world of difference 30 years from now. I wish there was some class that would teach that simple concept to high school and college students.
Starting young is SO important. i mean, I’ve got $15k in a Roth, but only because I put in $10k when I was 18 and 19. If I hadn’t, my investments would be laughable for my age. Now, they’re only slightly embarassing 😉
These are practical suggestions, Jason. Students should be smart financially especially those who are about to finish college. Young people have to be aware of that get-rich-quick methods seldom work. Be practical dear students.
And stay away from MLM’s!