The real world.
You've been hearing about it for years. “Just you wait…” they would say. Now you're here. It's new. It's scary. It's exciting.
You're starting your career and getting your first paycheck. You feel filthy rich. Just a few months ago you were eating ramen out of a plastic bowl you were reusing for the 18th time, and trying to figure out how to make money in college.
Now you're taking ownership of things like paying rent, cooking your own meals, and getting up on time. Maybe you are just now starting to realize what this FICA and “Fed Withholding” thing on your paycheck means.
Hmmm… maybe there isn't as much money to go around as you thought? You've got a lot of questions, and there's so much to know and do.
Here's the deal: the financial success and mistakes you make right now in this stage of life can either set you up for an easy run to retirement or make life significantly more painful moving forward.
That might sound like a ton of pressure to put on you, but thankfully you can make finance pretty easy if you make the right money moves now.
And don't worry, we'll show you how.
Ready to get a leg up on your financial future? Click here to download The KickStart Your Finances Blueprintand also get VIP access to the Money Dominating Toolkit.
Deal with Your Student Loans
A vast majority of you reading this have some sort of student loan debt. Like an albatross around your neck, student loans can prevent you from reaching your goals in myriad ways.
Before you can truly move forward in your finances, you need to create a plan to pay off your debt – or at least manage your monthly payments. The best options for dealing with student loan debt include:
Student Loan Refinancing
Companies like SoFi may allow you to refinance and consolidate your student loans into a new product with a lower interest rate and better terms. If you’re making multiple monthly payments on your student loans – or paying more interest than you feel you should – visit SoFi to explore your options and see if refinancing is for you.
While you will lose out on certain federal protections including deferment, forbearance, and loan forgiveness plans when you refinance federal loans with a private lender, you may be able to secure a lower interest rate, consolidate your multiple loans to achieve one payment, and get out of debt faster.
While refinancing isn’t for everyone, it can make a lot of sense for a borrower who:
- Has several monthly payments, and wants just one
- Is paying a high interest rate on one or more loans
- Has variable loans they hope to refinance into a new loan with a fixed rate
Paying Down Loans the Hard Way
Paying down your loans doesn’t have to take that long if you can put everything you have into it. You may want to consider refinancing into a better loan product first, but once you’re happy with your loan and its terms, you should focus on throwing all your extra funds at the principal of your balance to become debt-free as quickly as possible. Some general tips for getting out of debt fast include:
Make payments during your grace period, or even while you’re in school. Just because you don’t have to make loan payments yet doesn’t mean you shouldn’t get started. Once you are earning any type of income, throw those extra dollars towards your loans and don’t stop. Any payments you can make now will lessen the burden you’ll face down the line.
Keep lifestyle inflation in check. Just because you landed your first “real job” doesn’t mean you should go on a spending spree. By living like a poor student for a few more years, you can pay down your debts faster and set yourself up for a brighter future.
Snowball your payments – one way or another. Whether you choose to go after the loans with the smallest or largest balance, or prioritize your payments by throwing extra cash at the one with the highest interest rate, it helps to have a plan! Start by making a list of all your loans. Then take some time to figure out which ones you want to focus your energy on. Once you know how you want to approach the repayment of your loans, attack them head-on!
Loan Forgiveness Programs
If you plan to work in the public sector or have so much debt you can barely afford the monthly payments, loan forgiveness programs offer a “way out.”
These programs, which are federally sponsored and regulated, usually forgive your loans after you make monthly payments for a period of 10-25 years.
For the most part, your options include Public Service Loan Forgiveness (PSLF), which forgives the remaining balance on your Direct Loans after you make monthly payments for a period of ten years. To qualify, you must work in the public sector for a qualifying employer during that timeframe.
Income-driven plans are also available for individuals who qualify. Those options include Income-Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn Repayment Plan (REPAYE), and the Income-Contingent Repayment Plan (ICR). While these plans require you to fork over anywhere from 10 to 20 percent of your discretionary spending for anywhere from 20-25 years, you’ll eventually have your remaining balances forgiven at the end of the term.
Since you’ll have to live with whatever you decide, it’s important to think about much more than what is convenient today. Ask yourself how you want your life to look in ten, fifteen, or twenty years, and if you still want to be paying off student loans at that time. If the answer is “no,” look into refinancing and/or paying down your loans the hard way first. Most of the time, the sense of accomplishment you’ll feel when your loans are paid off will be worth any sacrifice you need to make.
We've got two resources for you on student loans:
Save Your Own Skin
Remember when you were in college and you got that flat tire the same day that your dining hall card ran out of money and your Aunt was nice enough to deposit some money in your bank account for you?
You're an adult now. Let's not rely on the generosity of any long-lost relative for our future emergencies.
It's time to set yourself up to save your own skin with an emergency fund.
I know, I know… saving money isn't “sexy” to talk about. But neither is credit card debt or begging your family for more cash. You can start your emergency fund out small and contribute to it each month to slowly build it up. Your friends won't ask you how big your emergency fund is, but they'll notice that you've stopped bumming food off of them, too.
Here are two quick reads to set up your emergency fund:
- Emergency Fund to the Rescue
- 70 Super Easy and Practical Ways to Save Money – Because saving money for your emergency fund doesn't have to be difficult.
Set Yourself Up for Life By Saving for Retirement Now
You're young. You just got out of college. Retirement is decades away. Surely you can ignore it for a few years before really focusing on the issue, right?
More from GFC, Below
Technically you can wait as long as you want to save for retirement.But it's like studying for a final exam. If you start studying in the first week of the semester and keep studying throughout, the final exam is a breeze. If you wait until the night before you will be lucky to earn a passing grade — and even so only after a lot of pain.
Let's compare two individuals. One starts putting away a small sum of $100 into a retirement account starting at age 22. The other decides to wait until age 27 once life has settled down a bit to begin worrying about retirement, but once he gets going he drops $100 in each month as well. Each person plans to retire at 65 years of age.
The 22 year old ends up with $427,140. The 27 year old? Just $289,529. (The late saver would need to save $149.60 per month — almost 50% more — each month in order to catch up.)
The earlier you start the more time your investment has to grow. The time value of money works for rather than against you.
Even if you can only afford to chip in a few bucks towards your retirement each week, do it. Starting the financial habit early will pay off in the long run. As your income increases your ability to contribute more increases, too.
Get started saving for retirement with these resources:
- Ready to Start Investing? Here's the Best Online Brokers for Beginners
- Best Places to Open a Roth IRA
- The 11 Best Short Term Investments For Your Money Right Now
Manage Your Money
Where are you going to find all this money to pay off student loans, build up your emergency fund, and save for retirement?
Call it “tracking your spending”, “watching your income”, or that dreadful word… budgeting.
I don't understand why everyone hates the word budgeting. Personally I like seeing that I managed my finances well and I've got more money left over at the end of this month than I did at the end of last month.
If you don't give every dollar a name through some sort of budgeting process, don't be surprised when it takes you longer to hit your financial goals.
Budgeting doesn't have to be a time-consuming process. Get started:
- Top 10 Best (and Free) Online Budgeting Tools
- The 11 Best Personal Finance Software to Get Your Money Swag On
Paying Off Your Wheels
You can't spend your entire day walking on a slackline rope on the campus quad — you've got to get to work!
That means you needs transportation of some sort, and for many people that means a vehicle.
But be careful with your vehicle choice. Picking up that brand new luxury vehicle with $500 per month payments might seem like a good idea right now, but going back to eating ramen so you can have a pimped out ride might change your mind. (Plus, you would then be paying higher insurance premiums for your luxury vehicle, too. If you need help finding a better rate than your current insurance plan, check out our list of best auto insurance companies!)
Picking the right vehicle can earn you a ton of money. Take my word for it. My Grandmother's 1998 Chevy Lumina made me over $2 million.
Not sure how much vehicle to buy or lease? Here are two resources to check out:
- How Much Car Can I Afford?
- Is It Better to Lease or Buy a Car?
- How My Grandmother's 1998 Chevy Lumina Made Me Over $2 Million
Do You Need Life Insurance?
Life insurance is to protect your family from the sudden loss of your income.
As a recent grad just starting your career, is life insurance really necessary?
Building and Protecting Your Credit
Your credit score is just in its infancy. Yet this number can have the greatest impact on your financial future than anything you do this year.
A bad credit score will result in higher interest rates when you go to buy a home. The difference in a $160,000 mortgage over 30 years at 4.25% and 5.25% is $34,712. Your monthly payment will also be larger by $96.43.
The problem is credit is so easy to mess up. You get a free t-shirt for signing up for a credit card at a campus fair. You buy a few things but only make the minimum payment because you're a broke college student. Before you know it you've got a $5,000 balance at 20%. You miss a payment, your rate goes higher and your credit score goes down.
Handling credit effectively requires a lot of maturity. If you handle your credit history and score well you will get the best the financial industry has to offer you. Do the opposite and you'll pay higher rates and have to deal with crummy products.
Manage your credit well. That starts with knowing your true FICO score:
Paying For a Wedding
Weddings are expensive if you let them be. The average wedding is over $25,000.
$25,000! That's two decent used vehicles, one new vehicle, or a down payment on a $125,000 condo.
Yet young adults that want to get married are often saddled with student loan debt and low incomes from starting new careers. So they put the expensive wedding on credit and work to pay it off.
Don't make this mistake. Having a nice wedding doesn't require tens of thousands of dollars. Nor does it need to hit you with thousands of dollars in interest after the fact. Start saving up for your wedding now to avoid that financial pain in the future.
Beginning to Save for a Home Down Payment
There are pretty good odds that at some point in the future you are going to get tired of renting and decide to buy a place of your own. It is wise to bring a 20% down payment when you go to do that.
“But saving up a 20% down payment will take forever!”
…that's kind of the point. Buying a home is a big deal.
Get your finances straight, grab an online savings account, and set up automatic contributions into that account to build up a separate fund specifically to buy a home with.