Around this time of the year, new college graduates are leaving their schools with a wealth of knowledge. At the end of their four (or six, or eight…) years of college, graduates have typically tackled a wide range of academic subjects, often with an impressive degree of complexity. Unfortunately, one type of lesson many of them are missing as they venture out into the real world is basic schooling in personal finance.
Here are seven personal finance lessons that recent grads might find helpful, because they probably were not taught these things in school:
- Student loans need a repayment plan.
According to the National Foundation for Credit Counseling, the average American college student now has $27, 000 in student loan debt at graduation. Make sure you know the schedule of when payments on your loans will start coming due (typically, this is six to nine months after graduation). If it looks like you will have trouble paying, explore options for alternate payment schedules. Most of all, stay in contact with your lender to find a workable solution. If you simply default, it can have drastic consequences which can include having your wages garnished, your tax refunds confiscated, and long-lasting damage to your credit record.
- Credit cards should be for short-term borrowing.
Recent grads are often deluged with credit card offers. This is not necessarily a bad thing. Credit cards can give your finances some flexibility while helping you build a credit history. The key is to understand and live by this rule: Credit cards should be used only for short-term borrowing. If you use them as a cash substitute during the month and pay off your balance at the end of each month, they can be a free resource, and you might even earn some rewards points in the process. However, if you use them to maintain a lifestyle you can’t afford, you will end up with two big problems: That lifestyle will come to an abrupt end when you reach your credit limits, and credit card debt carries a very expensive interest rate.
- The job market may be very different in the next state.
Having trouble finding a job in your area? Use the fact that you are probably not tied down yet to your advantage and look elsewhere. The unemployment rate in some states is more than twice as high as in others, and the job market can vary even more greatly in some professions.
- There is more to a job offer than salary.
When you compare job offers, be sure to calculate the economic value of any benefits that come with those offers. This includes things like how much they might pay toward your health insurance, or what kind of employer match they make on retirement plan contributions. These amounts can be in the thousands of dollars, so differences in benefits could easily tip the balance in favor of one job over another.
- Don’t be on the hook for your roommates.
Pitching in with others is often the only way a recent grad can afford a place to live, especially in expensive urban areas. Just be careful about whose name is on any legal agreements such as leases or utility accounts. You should take your share of responsibility, but make sure it doesn’t all fall on you if the others don’t pay their share. People’s lives can change quickly in the months after graduation, so avoid financial commitments that involve others.
- The right saving account will pay you for doing nothing.
As you handle the wave of new responsibilities that comes after graduation, you might fantasize about getting paid to do nothing. In a sense, the right savings account will do this. Most savings accounts these days pay almost no interest, but a few are paying around 1 percent. Find one of these relatively high-paying savings accounts, and it will keep paying you month after month with no further effort on your part.
- Overdraft protection is a sucker’s deal.
When you sign up for a checking account, your banker will probably offer you a helpful-sounding service known as overdraft protection. Be sure to decline it. In exchange for temporarily covering any overdrafts in your account, the bank will charge you a fee for each occurrence that is often several times the amount of the overdraft itself. This is a deal that is good for the bank but bad for the customer, so opt out.
It is commonplace to say that there is no teacher like experience when it comes to handling money, but imagine if you took that approach to biology, accounting, or whatever your chosen field is. If you had to experience everything first hand, knowledge would never get a chance to progress very far! Learning from others can help you get more out of your own experiences — and when it comes to personal finance, it can help that experience come at a much cheaper price.