Great financial advice is like a golden egg, you need to treasure it. For recent graduates, this concept rings even more true.
Many financial analysts point out that recent graduates tend to be extremely reckless with their finances after they graduate. Most find themselves the victims of lifestyle inflation, poor money habits, and burdensome debt.
Rather than suffocate yourself with the same financial woes as your peers, the advisable thing to do is to read excellent financial advice and to simply follow it. By taking the initiative, you’ll find yourself less stressed and ahead of the game.
Live Within Your Means
First and foremost, you should always live within your means.
Landing that $50,000 a year position does not mean that purchasing a new car, a condo, and new furniture is a sound financial decision.
To determine how much you should spend on your rent, your needs, your wants, and on your savings, financial professionals employ what is known as the 50-30-20 rule.
The rule indicates that you should regulate 50% of your take home pay to your needs, 30% to your wants, and 20% to your savings. Your “needs” is the category that includes rent, so you should take that factor into account.
Build an Emergency Fund
There is nothing wrong with living in an optimistic world, but it is also important to recognize that reality tends to come with unexpected surprises.
Your emergency fund will come in handy when you’re faced with a sudden car repair bill, a medical expense, or even that unanticipated job loss.
When building your emergency fund, your goal should be to save up at least a few thousand dollars and using your fund when you need it will prevent you from needing to rely on credit cards of financial assistance until you get back on your feet.
Credit Cards Aren’t Always the Answer
These days, the average American household has a credit card debt of nearly $16,000. This debt is the result of a financial philosophy that sets no limit upon spending.
The debt itself is also not fixed but is subject to hefty interest payments that only grow over time.
Instead of putting yourself in the unfortunate situation of credit card debt and growing interest payments, the best thing to do is to understand how credit cards work and to use your credit card to make purchases that you’ll be able to pay off.
At the end of the day, if you cannot afford something, it is best to not buy it.
Student Loan Debt is Secured Debt
Many graduates and seasoned graduates have the misconception that federal student loans are unsecured loans. An unsecured loan is a loan where there is no collateral put up, which means that if you default on your loan, there is no way for the financial institution to secure its loss.
The truth is that while you may not have put anything up as collateral for your federal student loans, the government can take steps to guarantee that it gets its money back.
If you do not pay your student loans off, you could find yourself subject to a lien on your possessions or even government deductions from your monthly paycheck.
Therefore, you should take steps to make steady and regular payments on your student loans so that you will be debt free before age 35.
Financial security is something that many Americans would trade anything for. As a recent graduate, you have the opportunity to truly start your finances on steady ground by taking the above steps.
In the long term, you’ll find that starting to work on your finances is one of the best steps you’ll ever make.