Editor's Note: This story originally appeared on Living on the Cheap.
Those of us who have been around the block a few times can’t resist sharing some of our sage advice with young people who are preparing to start their professional lives.
While every decision you make when you’re 21 or 22 won’t irrevocably change the course of your life, a few may.
College grads who start their careers with the right approach to money are likely to fare better later in life than those who are reckless with their money in their 20s, then need to get out of debt or make significant life changes in their 30s.
New college graduates would be wise to follow these smart money tips.
1. Establish credit and use it wisely
“If you look at the people who are most prone to ID theft, it’s not seniors – it’s college students,” says Jean Chatzky, financial editor of NBC’s “Today” show, an author whose books include “Not Your Parents’ Money Book” and the mother of a college-age son. “It’s because they have such a substantial online profile. Unscrupulous persons can create a profile and pretend to be you.”
Learn how to get a credit report and monitor your profile.
2. Live within your means
Living below your means is even better.
“Don’t get stuck in lifestyle creep,” advises LaTisha D. Styles, an investment analyst in Atlanta who started the Young Finances website four years ago at age 26. When she received her annual cost-of-living raise in the last few years, she increased her contribution to her 401(k) plan and stuck with a frugal lifestyle.
“In the meantime, I stayed in the same apartment, spent roughly the same on groceries and entertainment and never really felt the financial crunch because my increased contributions were offset by less taxable income,” she says.
Many college graduates live with their parents, which was considered unusual a generation ago. That can be a smart short-term plan, says Chatzky.
By not paying rent, a young person can build up a financial cushion and save for such things as a car, rent deposit or house down payment, graduate school or even a trip around the world.
Just don’t overstay your welcome.
3. Save money automatically
You can do it through payroll deduction, automatic withdrawal from your bank account or throwing change in a jar.
“Building the habit of saving and setting money aside is more important than the amount in those first few years,” says Julie Rains, the mother of a college sophomore who writes about personal finance for Wise Bread and her own blog, Working to Live Differently.
4. Take advantage of employer 401(k) plans
If your employer offers a 401(k) plan or equivalent, contribute as much as you can — ideally at least enough to get the maximum employer match.
“By not taking advantage of it, you’re essentially leaving free money on the table and giving yourself a pay cut,” says Robert Farrington, founder and editor-in-chief of The College Investor website. “The younger you are when you start, the more powerful compounding interest works for you. By starting at 22 versus 30, you could add hundreds of thousands of dollars more to your retirement account.”
5. Pay your bills on time
Not only is it a good habit, it also will help you build credit and avoid exorbitant late fees.
If you’re already finding you can’t pay your bills, make a budget and a plan to get that debt under control before it overwhelms you.
6. Choose your friends wisely
Don’t hang out with, or even consider dating, people who encourage you to spend your money foolishly. Those kinds of attitudes rub off.
The dating part is especially important because you absolutely don’t want to marry someone who doesn’t share your financial values.
7. Weigh the costs versus benefits before going to graduate school
In some fields, such as education, a master’s degree is a necessity. In others, having a master’s degree grants few career benefits beyond what you learn.
You don’t want to accrue additional debt to get a degree that won’t increase your salary. After you’ve been in the workplace for several years, you may decide to change direction or your employer may pay your way.
8. Learn about personal finance and investing
The internet is bursting with blogs and websites aimed at teaching 20-somethings how to manage their money. Read, learn and think ahead.
Living on the Cheap’s Money section can get you started investing and learning about personal finance.
9. Don’t expect to get a job by only filling out online applications
You are more likely to find a job through your college professors, parents, friends of parents and parents of friends, pastors, former babysitting clients, and anyone else you know.
This could require talking to people on the phone or in person. Networking isn’t always easy, but it is often the best way to get your foot in the door. Just do it.
Networking is one of the most important career skills you’ll ever learn, and social media has just made it easier. Decades after you graduate, you may get your dream job from the guy you played poker with as an undergraduate.
Stay in touch with your college friends and professors because they can be an asset years down the road, as well.
10. Clean up your social media profile
It’s the first thing prospective employers will look at. Google yourself to make sure the top results are positive ones. Delete or hide any compromising tweets or photos.
If you don’t already have a LinkedIn profile, create one to highlight skills you’ve gained through your education, your volunteer work, or any jobs you’ve had so far.
Remember to spell all the words right and don’t trust autocorrect. First impressions are important.
11. Learn to cook and clean
Not only will cooking save you money, but you’ll also be healthier. If you don’t already know how to clean and do laundry, pick up those skills, too.
If you’re living at home, it’s an excellent trade for free rent. As a recent graduate with little or no income, you don’t have the luxury to spend money to save time. Learn to do things yourself, so you don’t have to pay others to do them for you.
12. Splurge on experiences, not things
This is not the time to buy a new Corvette or a designer wardrobe, even if you just got a wonderful job with a fabulous salary.
You’ll never be this free again. Take every opportunity to travel and try new experiences.
And, as a bonus, we offer some advice for parents whose college graduates are also their new roommates:
- Make your graduate pay rent, even if you don’t need the money. Your son or daughter needs this experience. If you don’t want to keep the money, give it back when your child moves out or save it to pay for a wedding or a down payment on his or her first home.
- Have your young person contribute labor to the family. If you can work all day and do household chores, so can your kid. Good roommates share chores.
- Set ground rules. How will you handle sleepovers? House guests? Parties? You wouldn’t share a home with any other adult without talking about these issues before you moved in together. Your new graduate is an adult. Treat him or her like one.
What’s your top advice for this year’s college grads — and their parents?