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Real World Financial Tips for Recent College Graduates

by Kim Danger, Family Savings Expert for Coupons.com

To the millions of people graduating from college this spring - Congratulations on getting your degree! A good education is one of the wisest money moves you'll ever make. While you may be ready to take on a career, most colleges don't prepare you for the financial real world. Here are some tips to help you build a solid financial foundation early and create good habits to last a lifetime.

Live Beneath Your Means

The "I'll pay for it later" mentality is a common pitfall among young adults. Assuming your paychecks will only get bigger and that paying the bills will be easier when more money is rolling in can get you into big trouble. Some people never break free of that line of thinking and end up in serious debt (or bankruptcy) years later. Always spend less than you earn (aim for living on 80% of what you earn) and your financial future will take care of itself.

Resist the Urge to Spend

Your first paycheck may be burning a hole in your pocket, but resist the temptation to go out and treat yourself with big-ticket items. Let your friends go into debt buying cars they really can't afford and always carrying the latest designer handbag. Treat yourself with small pleasures and realize that financial security is a bigger luxury than anything you can buy.

Student Loans ? Strategic Debt Deletion

The average graduate leaves college with about $20,000 in student loans. Your student loan is probably the cheapest money you'll ever be lent ? so make your wages work for you and only pay the minimum. Sure, it's a natural urge to want to pay down your student loan as quickly as possible. But if you have a low rate and good terms, you may want to focus on other debts. If you're able to apply extra funds to your loan payments, first get rid of higher rate debt such as credit cards. Pay off your all your debt based on interest rates (the highest gets paid off first, and so on). Then, consider investing in something with a higher rate of return than your loan interest to build wealth.

Save Every Day

Things like clipping coupons, bringing your own lunch to work and carpooling may seem like small potatoes, but the savings add up quickly. Get in the habit of stretching every dollar every day. Here are some suggestions:

  • Print free coupons from Coupons.com instead of buying the Sunday paper
  • Skip the gym membership and work out at home
  • Find a roommate to share expenses
  • Borrow movies from the library instead of renting them
  • Learn to cook from scratch, and try new recipes instead of restaurants
  • Opt for a low-maintenance car (probably used) with good gas mileage
At a low estimate, just by adhering to a couple of the savings tips here you could easily save upwards of $200 a month ? that's $2400 hundred a year that can go into a bank savings account, retirement fund or for something fun as a reward for your diligence in saving money.

Save for a Rainy Day

Cars break down, people lose jobs, and unexpected bills arrive in the mail. Start a rainy day fund so that when these things happen (believe me, they will) you'll be prepared. Having money in the bank also creates a sort of psychological peace of mind that is priceless. Start with a goal of banking three months of living expenses and build up to six. Money in the bank can give you freedom to leave a job that you don't enjoy, or relocate if you just don't like where you're living. Having that flexibility will allow you to achieve your long-term goals.

Keep Track

No matter your age, it can be hard to know exactly where your money goes. When you?re first starting out, it?s even harder. Setting up a budget can help you keep track. Microsoft Money or Quicken are good software purchases for today?s technically savvy graduate. Sites like Mint.com are great for seeing where your money goes every day. Plus, it?s free. Once you see where your money is going, you can adjust your spending accordingly.

Don't Abuse Credit Cards

In today's world, getting a credit card is extremely easy. Paying it off isn't quite so simple. Having one or two cards to establish credit history is a good idea, but leave it at that. Many credit card companies target newly minted college graduates with low introductory rates. Read the fine print and make sure your rate doesn't skyrocket after the initial introductory period. Better yet, pay each card in full each month to avoid paying interest charges at all.

Save for Retirement

Retirement is probably the last thing on your mind as you enter the workforce. But financially speaking, making it a priority now is one of the best things you'll ever do. Understand the power of compounding interest. Investing $200 a month at 8% interest from age 22 to 65 will yield nearly $895,000. If you delay saving by just 10 years, until you're 32, you'll end up with $387,000 ? less than half of the other amount.

If your employer offers a 401K program, take advantage of it. At the very least contribute up to the employer match, with a goal of contributing the maximum amount. Opt for automatic withdrawal so that you never see the money: what you don't see, you won't miss.

Young adulthood is an exciting time. You've got your entire life ahead of you and minimal obligations. With systems in place to ensure a good financial footing, be sure to enjoy your money too. Now's the time to live it up!

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