WASHINGTON — So, you’ve recently graduated from college and just landed your first job. Congratulations!
Now that you’re gainfully employed and about to deposit the first of many paychecks in your bank account, how will you make sure that you avoid living paycheck to paycheck? While your time in college prepared you for your career, chances are it didn’t make you an expert in managing money.
That’s about to change. Here are six things you should do now to develop healthy money habits. Over time, these will set you on a course to build wealth.
1. Educate yourself
Now that you’re earning a paycheck, it’s time to learn how to make the most of your money. There are many fantastic books to help you learn how to budget, save and invest. I list four of my favorite books in The 4 best financial gifts to give a college graduate (other than money). I also recommend Millennial Invest, a field guide for young investors that introduces the concepts of investing in engaging ways.
2. Pay yourself first
Whether your starting salary is on the low or high end of the pay scale for an entry level position, everyone can and should set aside a certain amount each month to put into savings. This is one of the most empowering actions you can take, and I encourage you to do this step first before deciding how much you can afford to pay for rent and other expenses.
Saving even a small amount from each paycheck adds up over time and will give you a buffer should something unexpected happen, like when your car needs new brakes, or if you suddenly find yourself looking for a new job.
To help you stick with your plan, it’s easy to have these savings taken directly from your paycheck, or choose to set up automated transfers into a separate savings account.
3. Take the free money from your employer
Although retirement may seem like something in the very distant future, many companies encourage saving for retirement by matching a certain percentage that employees put away in their 401(k) plan. This is free money. If you can, try to max out the amount they match.
4. Make big plans for your money
Too often, overspending becomes a dangerous habit when there is no plan in place for your money. Online tools such as Mint.com make it easy to know where your money is going every month.
You’ll know exactly what you can afford to pay for rent and other expenses, such as phone and utilities. It will also help you figure out how much you plan to save and how much is left for everything else. When you’re in control of your spending decisions, you’ll be better equipped to avoid impulse purchases, or worse, be tempted to fund your overspending with high-interest credit cards.
5. Use cash instead of debit or credit cards
If you’re having trouble sticking with your spending plan, I recommend that you take out the amount you decided you can afford to spend for things like food, gas and entertainment for the week in cash.
If you run out of money before the end of the week, you have three choices: not spend anymore until next week; spend more this week by reducing the amount you have to spend next week; or overspend which means either saving less or having more debt.
By using cash, you’ll gain a greater appreciation for how hard you worked to make money and how easy it is to spend without thinking.
6. Pay off student loan debt
The average student will leave college with a diploma and over $30,000 in college loans.
One of the first things to consider when establishing your budget is how you plan to pay this off. If your starting salary is on the lower side, you may be able to negotiate with your lender.
The lender may be willing to waive interest on your principle for a few months, but you won’t know unless you ask. There is no magic formula for getting rid of this debt other than paying it off as quickly as possible. Make sure that you’re not making the hole any bigger by piling on additional credit card debt.
For other resources, check out my WTOP article: Millennials: Create financial freedom, one step at a time.