Top Personal Finance Do's and Don'ts for the College Graduate

Top Personal Finance Do’s and Don’ts for the College Graduate

Wed, Jul 8, 2009

I graduated college and had the opportunity to go directly into graduate school to get a master’s degree, so my real world working and personal finance experience was delayed for a few more years. I look back at some of the decisions I made during and after graduate school and realize they didn’t actually help me get off to the best start in managing money wisely. With so many graduates being introduced to personal finances and a truck load of debt when they graduate school it’s critical to get started in the right direction.

Recently, I heard Dave Ramsey talk about dealing with financial decisions after a close loved one passes away. He tells people to avoid major financial decisions such as selling a house, moving, etc. for at least six months. This amount of time allows one a chance to mourn, avoid unnecessary stress and get their thinking straight. You might say the same amount of time could be helpful for college graduates.

A college graduate has just gone through approximately 22 years (more if you decided to go to graduate school) of schooling with much of that time being supported by mom and dad. It seems absurd to turn them loose in the real world to juggle major money decisions which can be stressful on top of learning their first job. Why not let them ease into it?

If you’re a college graduate (or a mom and dad coaching a graduate) consider the below list of dos and don’ts after the diploma is in-hand.

Personal finance don’ts for the college graduate

Don’t make any major purchases

Avoid the temptation to go out and buy a new car as many of your friends are doing. You probably already have a car which has provided you transportation through college. Continue to drive your existing car unless you’re stuck with a car payment beyond your ability to pay, or the wheels are about to fall off.

I recently had a friend graduate with an advanced medical degree. Although, his situation is different than a newly college graduate, he is avoiding buying a house. Instead he has decided to rent until he’s been working for a while and has time to think about his next steps. I would recommend resisting the temptation for a least a year in order to get settled into your first job even if you’re blessed with enough money.

Don’t open a credit card account

Opening a credit card account is tempting to use to fund all those needs you may feel like you have once you have your first apartment and start a job. If you’re paying with cash, the real needs float to the surface and the other items find their way down the list and don’t seem quite as urgent when reviewed later.

Don’t invest

Yes, you may have some extra money, but don’t go out a buy shares of a mutalfund you found while searching the internet or talking to your buddy back home. See the do section for getting your retirement started.

Don’t get a dog

You might laugh, but I got a dog in graduate school and really didn’t have a good way to take care of him; they require a lot of work. I was making friends with all kinds of neighbors who could watch him while I took business trips out town to get training. Save the dog when you have a house, are stable and maybe have some kids to chase him around in the backyard!

Personal finance do’s for the college graduate

Do save some emergency cash

As with most financial counselors you’ll find they tell you to start saving $1000 towards emergencies. Open a money market account and start saving at least 5% of your take home pay into the account until you’ve reached this savings goal. Trust me, you’ll need it.

Do create a budget

Congratulations! You’ve finished college and now you’re a CFO (of your finances). Start acting like it and manage your spending wisely by setting up a good budget. It’ll help you save that $1000 before you’ve spent it all at Banana Republic.

Do create a debt plan

If you’re like the majority of American college graduates, you have some debt (frown). Part of that budget is going to be allocated to paying down that debt (and it’s not just the minimum payment). Learn to live debt free and start paying off credit cards, car payments and student loans ASAP.

Do cut up your credit cards

If you have multiple accounts, cut up every card except the lowest interest account. You will use this card only as a convenience card and plan to pay it off every month. If you can’t pay it off, or have a balance you can’t pay off with your first month’s income, don’t use it. Put it in your freezer and freeze all spending until the balance can be controlled each month.

Do invest up to the total amount your employer will match for your retirement plan

Some employers will let you begin investing in a 401K immediately. Others will require you to wait a few months. Once you have this benefit, sign up and invest up to the employer match.

Don’t invest more until..

you’ve worked 6 months, have $1000 saved for emergencies, have your debt paid off and met with a financial advisor to review your investment options. If you can get intense with paying off your debt in 1-2 years, you can then max out your retirement.

What are some of the things you did after you graduating college that may have not got you off to a good start in managing wisely? What are you doing as a college graduate to manage your money wisely?