3 Steps to Help Build Your New Financial Life
As you get ready to graduate college, you realize just about everything in your life is bound to change, including how you handle your money. Whether you’re headed toward a great internship or job, backpacking the backwoods or applying to graduate school, the way you spend and save money will likely be different than it was as an undergrad. Chances are, you’ll get hit with a lot of information your professors never covered in class, but these three steps can help you get a strong financial start.
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1. Spend Wisely
If you’re headed to a first job out of college or paid internship, you may have a low starting salary and expenses like renting an apartment, groceries, utilities, commuting and a reasonable social life. If you aren’t entering the workforce, opting instead to travel or volunteer, figuring out how much you can afford to spend on weekly and monthly expenses can be even more challenging.
Before you graduate can be a great time to assess your situation and make a budget. Popular apps such as Mint and YNAB (You Need a Budget) can help you get a handle on your spending and provide a snapshot of all of your finances in one place. An established budget may help you resist the temptation to blow your first paycheck on a new smartphone or a weekend jaunt.
2. Start Saving Now
With all the new expenses in your life, it may seem like every cent of your paycheck is already spent before it lands in your bank account. Typically, there are simple techniques you can use to save a little money here and there, even from your very first paychecks. Try to get in the habit now of putting a set amount away each pay period, even if it’s only a few dollars at a time. You’ll be surprised at how fast even a small amount adds up over time.
You may need that stash for all sorts of things, including an emergency fund for unexpected expenses, an apartment, transportation, vacation or even medical expenses. Determine what’s most important to you in the near future and the long term. Prioritizing your savings goals in writing can help motivate you to put the money away each month.
3. Build Your Credit Rating
It’s never too early to start thinking about your credit rating and credit score. Your credit score indicates how well you handle your money. The three big credit reporting agencies, Equifax, Experian and TransUnion, keep records of your history of payment, how many credit cards and other lenders you have and how much you owe, according to Credit.com. Based on this information, each bureau generates a number, or score, that allows lenders to determine how responsible you are and how much of a risk they may be taking if they lend you money.
Building a solid credit history at the start of your career may help make achieving your goals down the road easier. That’s because lenders look at your credit history before approving a loan, including a credit card or auto loan. You may get the edge on a job, get a better rate on insurance and qualify for an apartment if you have a good credit score because employers, lenders and insurers often check your credit rating. In other words, how you paid your bills in the past can have an impact on your future.
One of the best ways to build credit is to pay your credit card bills on time. If you already have a credit card, you’re familiar with this. But if you’ve been using a debit card or have a credit card under your parents’ account, you’re not getting the credit history reporting you may need. That’s because your debit card transactions aren’t part of your credit report, and the transactions you make on your parents’ card are attributed to your parent’s credit report.
Consider opening a credit card and making small purchases well under your credit limit. Then make sure you pay the monthly bills on time to help build your credit rating. You can even sign up for a rewards card that gives you cash back on important purchases such as gas and groceries.
Graduating your card is a good way to graduate your finances too. You’ll build your credit history and learn financial habits that will last you a lifetime.
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