Your four years of studying for that degree are finally behind you, but there is another important class that you need to pass: Adult Money-Management 101. The days of eating ramen off a milk crate-turned-table may be over, but with a bigger budget comes bigger responsibilities. Here are seven life lessons about money to learn sooner than later.
It’s traditionally recommended that you cap your monthly rent at 30 percent of your monthly income. Whether or not that number works for you will depend on factors like your starting salary and your student loan debt, and you may actually be able to pay significantly less – but it is generally not advisable to go much higher than 30 percent. Keep your housing costs down by finding a roommate, commuting farther if you must, or even living at home with family for a little while longer if that is an option.
During college and before, you may have based this decision solely on convenience and/or opted for wherever your family already had accounts. But the beginning of your adult financial life is a good time to take a closer look at where you bank. Local is always a good place to start. This will give you more face time with professionals who can answer your questions, and local organizations tend to be more genuinely invested in the financial health of their communities. Your financial institution should be more than just a place to stash your cash – choose one that will work for andwith you as you achieve your money goals.
Sooner or later, you can count on a large and unexpected expense – usually at the worst possible time! Three to six months of living expenses commonly is cited as the ideal amount for an emergency fund. If that number seems intimidating or even impossible on an entry-level salary, just do what you can, setting a goal for, say, $1,000. Your emergency savings should be kept in its separate (but easily accessible) bank account so you do not wind up dipping into it for a non-emergency.
Your credit score is key to major purchases such as a new car or your first home, and can even be a factor for employment in some fields. To avoid dings on your credit report, pay your bills on time, every time. Consider scheduling automated payments if you have trouble keeping track of when everything is due. One way to build credit is to open a credit card, use it to pay a routine monthly expense, and then pay off the balance in full each month.
Really! You may have just started working full-time, but it’s never too early to begin planning for your golden years—especially when you consider factors like inflation, increased longevity, and uncertainty around government-funded retirement benefits. If your employer offers a 401(k)-matching program, make it a priority to take advantage of that. If not, you can start saving independently by opening an Individual Retirement Account (IRA) at your credit union or bank.
Landing your first “real” job and seeing that direct deposit appear in your bank account every two weeks can make it all too easy to succumb to small, but habitual, splurges (especially in social settings where you might feel peer pressure to spend). Resist the temptation and stay focused on your longer-term financial and life goals, whether that is paying down student debt or saving for your first home. The good news is that plenty of your peers will be in the same financial boat as you, so you will have opportunities to build a social circle of individuals who are fun loving and future-focused – just like you!