5 Pieces of Financial Advice for New College Graduates

Just like attaining your diploma, fiscal responsibility takes hard work. Here are five simple steps for getting started.

May 10, 2014 at 12:00PM

As a fresh college grad, you're entering an exciting phase of life. But sometimes the exuberance yields cavalier spending habits that can take years to repair. Much like achieving your college degree, financial responsibility takes discipline and hard work. But getting a solid start is totally doable.

Here's how.

1. Limit comparisons to your peers
Soon you'll be out in the working world making serious money -- and it feels awesome! But trying to "keep up" with your peers can start to feel like keeping up with the Kardashians. Out-of-control spending on "must-have" designer shoes and expensive nights out at trendy restaurants can rack up credit card debt that takes years to pay off. If your friends decide to go this route, so be it. You don't have to follow them down the same slippery financial slope.

2. Make a budget and monitor your spending against it
Developing a postgraduation budget will help you stay in control. You can make your own or use free apps and software to help you. For example, Intuit's Mint.com can help you set goals, see where your dollars go each month, remind you to pay bills, and warn
 you if you're going over budget. Getting into the habit of tracking your money on a regular basis will serve you well for decades to come.

3. Build credit responsibly
Open one or two credit cards and use them every month to demonstrate that you can pay your bills sensibly. Pay them in full and on time -- no ifs, ands, or buts about it. Avoiding credit card debt from the get-go is one of the single greatest financial moves you can make. Clearly distinguishing your needs from your wants will help.

Not only will responsibly used plastic help you build credit, but many credit cards also offer cash back or rewards for on-time payments. For example, JPMorgan Chase's Chase Freedom Visa offers 5% cash back on up to $1,500 spent on categories that rotate every three months. And Capital One Financial's Journey Student Rewards card gives a cash-back bonus when you make an on-time payment. Both cards boast no annual fees and grant 1% cash back on all purchases.

4. Tackle student loan debt
Because student loans generally don't require repayment until after graduation, paying them down may be a novel concept to you. Making the minimum student loan payment is a must. But paying more than that amount each month will help those loans disappear even faster. Consider switching to biweekly instead of monthly payments. By doing so, you'll pay less in interest because there's less time between payments for interest to accumulate. You'll also end up making an extra month's worth of payments every year. That's a relatively easy way to reduce the cost of borrowing and pay your loan off faster. Also, if you get paid biweekly, the payment feels the same on your wallet because you're taking half of a payment from each paycheck. And paying your student loan off faster will allow you to more easily save for future financial goals, like traveling or buying your first home.

5. Prioritize retirement savings
If your employer offers a retirement plan, like a 401(k), start contributing from day one. Time is on your side, so don't put off contributing to your retirement plan. Need some convincing? Consider this: For a recent college grad earning $40,000 per year, contributing 10% of his or her salary starting on day one, rather than two years later, translates to an extra $211,000 in the retirement nest egg. That's based on the following assumptions:

  1. You earn $40,000 per year from age 22 until retirement at age 66, with no change or lapse in pay.
  2. Your 401(k) returns 8% per year.
  3. You do not receive an employer match for your contributions.

And about that last point: You should contribute at least enough money to take full advantage of your employer's match (assuming they offer one). An employer match doubles your contribution and therefore your potential returns. And when you get your first raise, make sure your 401(k) deferral increases in line with your salary. Years down the road, you'll be amazed by the amount of wealth you've accumulated.

Foolish takeaway
Developing good financial habits early in life is crucial. By sticking with these pieces of advice, you'll not only save yourself a ton of headaches, but also get a huge jump on building some serious wealth. 

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Nicole Seghetti owns shares of JPMorgan Chase. Follow her on Twitter @NicoleSeghetti. The Motley Fool recommends Intuit. The Motley Fool owns shares of Capital One Financial, Intuit, and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

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Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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