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.