The timeless tradition of graduation celebrations is almost inevitably followed by the sobering reality of what comes next. And one of the toughest new subjects for many newly minted grads is managing their personal finances, a topic that doesn’t come with a syllabus or course guide.
To give recent graduates a quick primer on things they can do now to help get their financial futures on a winning track, we talked to Mint.com columnist Matthew Amster-Burton. He had four quick tips on how to get a solid financial footing as you set off on the game of life.
Use Cash, Not Credit
First on the list, Amster-Burton said, is to keep living the financial life of a student as long as you can – meaning avoid signing up for credit cards and their lure of up-front cash.
“My top piece of advice – and the graduates may not want to hear it – is to keep living like a college student as long as you can,” Amster-Burton said. “You might have student loans, and you’re facing a brutal job market, so it’s best to do things like a student. If you have a car you can drive into the ground, stick with it. The more things you can do like that, the better. You’re going to be so much better off than peers who are living on borrowed money.”
Set a Budget
The next step, Amster-Burton said, is to determine what type of budgeting works best for you. One type is a strict budgeter, who in the old days might have put cash each month into separate envelopes, one for rent, one for the phone bill, one for groceries.
“The good thing is you can do all that [budgeting] on Mint.com now,” said Amster-Burton in a nice bit of company promotion. Other individuals, he said, might be more comfortable with a more free-form budget, setting aside a certain amount each month for disposable income, without strict guidelines.
“Figure out what type of budgeting works for you,” Amster-Burton said. “If you pick the wrong one, you are likely to be frustrated or overspend because you need the details to keep you in line.”
Amster-Burton also recommends that new graduates lose the idea that they need to march down to the local bank branch to open a new checking account. Though many financial institutions advertise things like “free” checking accounts, he said they rarely have a recent grad’s best interests at heart.
“When you come out of college you smell like fresh meat” to the banks, Amster-Burton said. “There’s lots of talk about free accounts but nobody’s going to go out of their way to tell you about them – you have to be your own advocate.” What can really be a problem for new grads are the hidden costs, usually found in things like monthly fees, overdraft fees and low-balance fees.
“If you can do banking online, do it – you can deposit checks with your smartphone now,” Amster-Burton said. “The days of having to have an account at the local branch are over.”
Get Ready to Retire
Although the ink on the diploma may still be wet, it’s not too early to think about retirement. If you manage your finances well and are able to start putting some income away, Amster-Burton has two immediate recommendations: Contribute as much as you can to your employer’s 401(k) program; if you are doing savings yourself, choose a Roth IRA.
“You should absolutely participate in a 401(k), especially if your employer has some kind of matching funds arrangement,” Amster-Burton said. “It’s the only free money anyone will ever throw at you.”
A Roth IRA, Amster-Burton said, is a great choice for many reasons, including the ability to withdraw funds without a penalty in case of financial emergency. “A Roth IRA is best because it has incredible flexibility, plus you can contribute to it just like a savings account,” he said.
You’ll find more help and information, including savings and financial tools and calculators on Mint.com.