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3 Money-Smart Moves for Smart Grads

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Around the country, a new group of college graduates is preparing to deal with something a lot scarier than the recent revival of Nightmare on Elm Street: entering the workforce amid some of the most challenging economic conditions the country has ever seen.

Even under the best of circumstances, it's a big challenge to start out on your own. But regardless of economic concerns, there are things you can start doing to make sure you get off on the right foot -- and build a solid foundation for the rest of your financial life.

Getting out of the hole
Perhaps most unfortunately, many new grads must start out with the handicap of debt. The rise in college costs shows no sign of slowing down, forcing many students to build up substantial student loan debt. Until recent changes to federal law, credit cards were freely available to college students, making it easy for students to get into debt over their heads.

With that in mind, here's my advice for recent grads.

1. Postpone the party.
Sure, it's exciting to be out on your own. If you're lucky, you may even already have a job lined up. But before you get rid of all those ramen noodles and start living up to your newly enhanced means, do yourself a favor and divert a big chunk of your paycheck toward getting yourself back to even in the net-worth department.

No, I'm not saying you should live like a starving student for the rest of your life. But too often, young adults quickly leverage up their new salaries by taking on even bigger debt obligations, like buying a new car or even a house or condo. If you don't even take the time to establish that you can be responsible for your existing debt before you start racking up even more of it, you may never get a handle on your finances.

That's not the way to get off to a good start. Throughout school, you've used cost-cutting strategies like living with roommates, sharing expenses, and taking advantage of free and low-cost entertainment. Staying on the same path for a year or two after you graduate will go a long way toward getting yourself out of debt. You're never too old to be frugal.

2. Start saving.
Once you've gotten rid of the worst of your debt, it's time to move on to the next big goal: starting to save. The easiest way to start is the seamless way: Just take the money you had been using to pay off debt and instead stick it in an account somewhere.

You may even find it a good idea to save while you still have debt. Some student loan debt, for instance, offers very low interest rates and flexible repayment terms. You don't need to be in a hurry to get that debt paid off. Instead, consider setting aside free money for your emergency fund or to start a Roth IRA.

3. Be aware of your goals.
When you're just starting out, it's hard to know exactly what you want. It may be years before you sort out all the pieces of your life the way you want them.

Nevertheless, setting some simple long-term goals makes sense. Here are some things to think about:

  • Will you want a family? What kind of residence will you eventually want to accommodate your family plans?
  • What are your financial prospects like? Have you chosen a high-paying profession in which you can expect a lot of money flowing throughout your career, or do you need to make every dollar count from Day 1?
  • What trade-offs are you willing to make? For instance, would you like to retire early even if it means living more frugally, or would you rather work longer to accumulate a bigger retirement nest egg?

There are no wrong answers here. But by thinking about the issues now, you'll put yourself in a position to evaluate your financial prospects both now and as they change in the future.

Getting through school is a worthy accomplishment. Even if your future is uncertain, no one can take your education away from you -- and it will serve you well. By thinking about your financial future, you can make that education work even harder for you.

Tune in every Monday and Wednesday for Dan's columns on retirement, investing, and personal finance.

If you're just getting started in the world of money, start out with our 13 steps to a Foolish financial life. And thanks for visiting!

Fool contributor Dan Caplinger made his share of money mistakes coming out of school, but he eventually got it right. Try any of our Foolish newsletter services free for 30 days. The Fool's disclosure policy looks good in black but refused to replace its jester cap with a mortarboard.

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