If you are young or just starting out on your financial education journey, I’ve compiled a few financial tips for college grads & newbies that will help you save wisely, spend smarter, and learn to live your best life without sacrificing your financial freedom. The key is to start saving as early as you can!
The sooner you start saving the more compound interest will work in your favor allowing your savings to grow and grow in future years. If you have not already started saving for their future, you need to start saving now! I think most people dread the idea of saving more because it usually means they have to give up something. I agree that you may need to “give up” something, but that doesn’t mean that it has to decrease your happiness at all. If you eat out one day less per week, will it really make you less happy? I think it is just the opposite as you spend less and save more; you begin to appreciate the little things in life. However, everyone has their own way of living and habits they don’t want to change, so taking time to adopt a few new habits at a time will help you change your spending and saving habits.
Tips on Saving
- Take advantage of free “company” money. Start contributing to a 401K, and possibly an employee stock purchase plan. At least contribute to a 401k up to the percentage your employer matches! It’s completely free money, so an immediate 50-100% return on your investment. Once you start contributing a certain percentage of your paycheck, you will cut your budget to forgo that extra money. Soon, you won’t even notice until you look at the balance in your 401k. Ah, the value of compounding.
- Save as much as possible in tax-deferred retirement accounts sooner than later. Similar to the tip above, although retirement may seem a million years away, saving even a LITTLE now makes a huge difference later. I regret not doing this when I was younger. Research and understand the difference of a traditional IRA, Roth IRA, and a 401k.
- Start saving up an emergency fund. When something unexpected happens, it can be extremely difficult to find the money to pay for it if you don’t have extra savings.
- Don’t be too conservative with your investments, especially when you are young. Time is the great equalizer when it comes to the market so you have time to be aggressive.
- Save your raises and bonuses! Once you develop the mindset of not counting on raises and bonuses (since they are never certain anyway), you can just start banking them. You will be surprised at how quickly they can accumulate and contribute to your financial independence and/or early retirement.
Tips on Spending
Use a rewards credit card. Use the cash rewards credit card as though it were a debit card, pay it off in full every month, and if you do have a balance, never have a larger balance on the card than you have in your bank account. For some, using a credit card can be a dangerous thing, so proceed with caution and only use a credit card if you know you will be responsible with it!
- Spend less than you earn. Keep living like a college student for as long as possible. If you can, live as cheaply as possible by living at home with your parents to avoid paying rent altogether.
- Resist the urge to get an apartment alone, instead find one or two good roommates. At this stage of your life you’re probably used to living with others, so continue to tough it out for your first year or two after graduation and you can save a ton of money in rent and utilities!
- Don’t buy new furniture. Whether you have your own place or have roommates, look on social networks for free and cheap furniture to fill your new apartment or home. You can also throw the request out to family and friends for anything they may not need anymore. Thrift shops are another good sources, especially on their discount days. (For example, Goodwill locations in Arizona has 50% off days every other Saturday.)
- Don’t buy a new car. I’ve made this mistake. Buying a used care is a much wiser money move. They’re as good as new, a lot still have most or all of the warranty, and the price difference is worth it.
- If your work pays for continuing education (MBA, training classes, seminars, workshops, etc.) take advantage of work-sponsored education today. I was able to get my MBA from Arizona State University free since my employer at the time paid for it. I not only earned an advanced degree to add to my resume, but I made friends and future networking connections in the process.
- Create a budget. Once you start tracking your spending for a few months, you will start to get a feel for what you really spend. Then take a look at how you are spending your money. Does your current spending fit with your future plans? If not, find ways to save money and stop spending needlessly. Be clear about your goals and truly understand the difference between a want and a need.
Other Life & Finance Tips
- Read books! They can literally change your life. Books can teach you new things, take you on an exotic trip, or lose yourself in a fictional romance or mystery.
- Create goals and an action plan as soon as you can. Start first with a financial plan that has prioritized goals, projected spending, and how much you should be saving.
- Continue learning. There is still a lot to learn out there. School isn’t the only place to learn, but really just the beginning. Continue to learn everything you can whether it’s about finances, leadership, relationships, and life in general. Apply all the you learn to live a long, happy life.
- Read about saving and frugality. Not every tip is meant for every person, especially if you don’t have children (like me), but reading blogs and books will give you inspiration on saving more; will still living a rich life.
- Pick the right job early. It helps if you can find your passion while you are still in college, but you will still get an opportunity early on in your career.
- Find a mentor. Shadow career professionals you admire, and choose a job that you are not only passionate about, but offers a wealth of professional opportunity. It may not have the highest paycheck from the get go, but if you are passionate, work hard, and are determined and goal-oriented, you will find that the money will follow.
- Travel while you are young and adventurous enough to do thing cheaply. It easier when you are younger to backpack through Europe and stay at hostels, visit different places and stay with friends, or have the flexibility to stay in less expensive places.
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You also need make sure to have fun! Live your life – travel, explore, meet new people, and experience new things while you are young and have fewer responsibilities. Of course, you always want to be conscious of your spending and continue to save; but as you get older your obligations will grow – career, kids, family and friends will all want a piece of your time, and the time will quickly get away from you. The “tips” above would also be advice I would give to my younger self. We all make mistakes, but we all learn from them and hopefully can help others in the process.