You’ve just graduated from college. Congratulations! You have exciting (and slightly terrifying) decisions ahead of you. Where will I work? Where will I live? How will I make a stable life happen?
The end of college also signals the start of an independent financial journey. Come July and August, you’ll find that budgeting, saving, paying off loans, and dealing with insurance become necessary parts of your life. Most of you probably won’t have learned these things in college.
The good news is, as a college graduate, you’ve developed soft skills that you can apply to your financial life–even if you’ve never taken a personal finance course. Just as it took you months to master any subject, it’ll take time to master your finances. College taught you to learn how to unfold a big issue, from simple concepts to the more complex. Personal finance is no different. You’ll need to plan and dedicate time to learning about each of the areas of your financial life and keep your wits about you. The more you know, the better your financial decisions will be.
But where should you start? What are the potential mistakes and golden moves to know when beginning to handle your own finances? Should you be paying down that college debt or saving for the future? How will you make rent at the start of the month? Here are 5 simple financial life-changers that take the guesswork out of where to start.
1) Create a budget (so you know where you are)
When you think of budgets, you probably think of finding ways to slash your spending. In practice, budgeting is simply money management and a financial tool for data collection. Before you can do anything, you have to know where you are. Creating a budget will provide an overview of your cash flow. You’ll be able to see whether you need to bring in more income–like picking up a side hustle or reducing your expenses. Perhaps you can save money by buying your lunch once or twice a week, rather than every day. The key isn’t to impose austerity, but to make moderate changes that you can live with and stick to over time.
2) Make a plan before you act
A real financial plan takes into account both short-term and long-term goals. You might not want to think about retirement or buying property when you’ve just started earning. However, having a plan will help you make smarter financial choices. As you go through life, you’ll have significant purchases to consider. It’s crucial to identify your priorities so that you can make smart choices about what to do (and when).
You’ll want to rank your goals and priorities, as you won’t be able to do everything–at least, not at once. At the beginning of your career, you might want to focus on paying off your college loans, so you contribute a smaller percentage of your paycheck to your retirement fund. This percentage might get larger as you eliminate more and more of your debt. Of course, don’t forget day-to-day expenses, like rent, utilities, food, and transportation costs.
3) But make sure to tackle one thing at a time
Of course, a financial plan means nothing if you don’t stick to it. The key to consistency is to keep it simple. Once you’ve identified your priorities, do it, but don’t overload. This means taking on one financial ambition at a time. Don’t set up a retirement fund, apply for two credit cards, and book a trip to Aruba in the same day. You might have relied on random bursts of energy to pull an all-nighter to finish your term paper, but this approach doesn’t work for your finances. You need to be purposeful, well-informed, and make decisions slowly and carefully.
4) Read the documents
No financial documents are the same. Insurance policies, rental agreements, and loan documents will differ by financial service provider and product. Before signing any financial documents, you need to read them carefully. Most importantly, you need to be sure that what you think is covered is actually covered. If you don’t understand something, ask questions. If still doesn’t make sense, then it’s not the right financial service for you. Don’t forget to pay attention to details. For example, most renter’s insurance policies don’t cover floods. You’ll need a separate plan for that.
5) Watch your debt–and avoid consolidation
Be wary of college debt consolidation loans. A debt consolidation loan is a refinanced loan with an extended repayment period, which means it’ll take longer to pay off your debt. It does not reduce your outstanding debt. If you move from a U.S. Government loan to a private loan, you will lose the option to use income-based repayment plans like Pay As You Earn (PAYE) or Income-Based Repayment (IBR).
Your financial life will always be about making trade-offs and choosing what you need. It’s also about what’s important to you, and what you can eliminate without compromising your quality of life. There are some things that you can’t change, like food and housing, but you can change your attitudes about what you need (versus what you want). Once you become comfortable with your situation and educated about your options, you’ll be well on your way to being a financial literacy graduate.
Tony Steuer is the author of Get Ready: A step-by-step planner for maintaining your first financial aid kit