College graduates carry an average of $25,250 in student loan debt, according to The Project on Student Debt by The Institute for College Access and Success. Compounding the debt are the expenses of the job search, moving, a professional wardrobe and new car or bus pass.
According to Brentwood CFP (Certified Financial Planner) Eric Soiland, the first order of business for grads should be to take a long, hard look at their finances.
“The first thing that they have to learn to do is to pay themselves first,” said Soiland. “You need to put away at least 10 percent of your paycheck or put part of it in some kind of retirement account … Then they’ll always have something for a rainy day.”
Other items to consider when first entering the workforce include:
Develop a budget
According to a 2011 CareerBuilder Survey, almost half of Americans report they’re living paycheck to paycheck. New graduates should create a budget, including all expenses, from rent/house payments to haircut costs and weekly groceries. Also include space for savings. Categorize each expense into a necessity category and a discretionary spending category, which will help highlight areas where expenses could be cut. For example, are payments for cable or satellite TV necessary, or could you survive with free local TV and a less expensive subscription for wireless or mail delivery movie rentals? Setting up a budget can help a new graduate determine if more money from a paycheck can be put into savings.
“Really, it’s about using common sense,” said Soiland. “Decide what you need and don’t need. Maybe you don’t have to have the latest cell phone with the latest technology. And you don’t need to go to Starbucks every day. That can add up to hundreds of dollars a month.”
Look into work benefits
For many, the first job is a baptism by fire in figuring out employee benefits and making them work. Recent graduates should take advantage of employers offered retirement plans such as 401(k) as soon as they qualify for it.
“If your employer has a 401 (k) plan, take it,” said Soiland. “It’s free money.”
For younger new grads, the combination of time and potential for a retirement account to grow are powerful in planning for retirement down the road. Health, life and disability income insurance are also good benefit options to research. If your company doesn’t offer these kinds of benefits, consider obtaining coverage independently.
Pay off the right debts first
Debt can occur in numerous forms. Car payments, student loans, mortgages and credit card accumulations are a few of the more common forms of debt.
“Get a handle on the debt,” said Soiland. “Especially with any college debt. Establish a payment plan you can afford and stick with it.”
It’s a good idea to pay off first those debts that have the highest interest rates and are not tax deductible. Ideally, a person should have enough savings on hand to pay off a short-term debt, such as credit card purchases, on a monthly basis.
Rein in spending
Look yourself in the mirror and identify your spending habits. If you’re an impulse buyer, force yourself to delay impulse purchases by 24 hours. And determine if your spending habits are influenced by emotional factors or peer pressure. Once these habits are identified, it’s easier to establish ways to circumvent bad financial decisions.
“If you’re willing to sacrifice a little in the beginning, it will pay off down the road,” said Soiland. “The main thing is to get in the habit of putting something away and saving a little every paycheck.”
–ARA Content contributed to this story.