The money lessons you’ve gotten from your parents may not be enough to prepare you to face your financial life after college.
And most teachers don’t even think they’re equipped to integrate any personal money management principles into their lessons, according to the National Endowment for Financial Education.
There are no loans to rely on, and soon you’ll have to start paying off your college loans and any other debts. So now it’s up to you. Here’s how to start.
Fight the urge to just spend
It may be tempting to go shopping, check Amazon.com or otherwise spend wildly when you get your first real paycheck from a full-time job, but you don’t want to establish a habit of living paycheck to paycheck. Instead, decide beforehand how to allocate your money.
“If those habits aren’t created when you first graduate from school, it’s incredibly difficult to adjust,” says Katherine Liola, an advisor at Ameriprise Financial.
Develop a savings and spending plan, says Justin Krane, a Los Angeles-based financial planner. “List out what your non-discretionary expenses are. Non discretionary expenses are things that you have to spend money on,” Krane explains. Like rent if you no longer live at home with your parents.
Set up automatic payments
To avoid letting the bills pile up and prevent you from missing any payments, Liola suggests setting up automatic payments for your utility bills, cell phone bills, to pay off your school loans and for any other monthly expenses that you can set up to pay automatically. But don’t just set them and forget about them.
You’ll want to check your bank transactions to make sure payments have gone through, you haven’t been double charged and that you recognize every transaction on your account. Adam Levin, Chairman of Credit.com suggests checking your bank transactions online as often as every day to stay on top of your spending.
Financial advisors always say you should pay yourself first. It sounds confusing, since you’re the one who’s getting paid in the first place, but what they mean is that savings should come first, so establish your cash reserves in case of an emergency or unexpected job loss.
According to Liola, a person’s cash reserves should equal three months of total expenses. That includes committed expenses like bills and discretionary expenses like what you spend on shopping each month.
You should ultimately aim to save $10,000 to $15,000. That might seem like an intimidating amount, but as long as you aim to achieve that in two to three years, you’re on the right track, Liola says.
You don’t need to have your entire emergency savings fund established before getting a car, if you absolutely have to have one, as long as you’re saving adequately while you’re making car payments. And ultimately you need to recognize that a car is a lifelong expense, Liola says.
“You can get cars where the payment is going to be $150 to $200. It might not have all the features you want,” Liola says, but it’s a car. Of course, biking and public transportation are probably cheaper, so consider those options as well.
Take a step back and think about what matters to you in life, Liola suggests. Do you want to be able to afford to travel? Do you want to have the latest gadgets? Do you want to invest in stocks? Or do you just want a certain amount of money in the bank in order to feel secure?
Whatever your goals are, write out a plan for how you’ll reach them. It may seem like a cheesy exercise, but writing things out can really help you make decisions.
Prioritize your discretionary spending
Now that you’re on your own, you get to set your own priorities. Discretionary expenses are things that you choose to spend money on, explains Krane.
“If they happen to be buying the latest gadgets, that’s OK,” financial advisor Liola says. As long as you’re paying your bills and saving up enough money, go ahead and buy that iPad with your discretionary dollars.