College Grad’s Guide To Managing Money In the Real World
Washington — The inspirational speeches are over. The celebrations have passed. And now, it’s time for the college grads who’ve landed jobs to start working.
While their paychecks will likely be the biggest they’ve seen so far, they probably won’t feel big enough to cover the rent, student loan payments and credit card debt they may have amassed as broke college students.
There are ways to stretch those meager earnings, though, especially for the millennials who are good at investing their most plentiful asset: time. Part of that means establishing certain habits — like speaking up for yourself, saving even when it feels impossible and tackling debt head on — that will pay off more and more as those paychecks grow.
Here’s where to get started.
∎ Always negotiate.
Asking for more money is never easy, especially when it’s your first job offer and you hardly have any experience to tout. Most employers, however, say they don’t punish job candidates who negotiated salary on entry-level positions. In fact, in a survey of 700 companies by NerdWallet, three fourths said they actually left room to grow those salaries by between 5 and 10 percent during negotiations.
Use Web sites like Payscale.com and Glassdoor.com to research what the average company in your field pays employees in your region with entry-level experience. Then ask for a salary closer to that — but only after you have the offer in hand. When you ask for more money, base your argument on how much the company will benefit from hiring you, not on your financial struggles. And if they say no to a bigger paycheck, see if they’ll give you a few more vacation days or the chance to work from home once in a while.
∎ Have a budget.
Once you have a paycheck, you need a budget to make sure you’re not spending more than you earn. A rough guideline is to spend about 50 percent of your paycheck on fixed monthly bills like rent, electricity and Internet access, says Bruce McClary, a spokesman for the National Foundation for Credit Counseling. About 30 percent of pay can then go to more flexible spending like dinners out, hobbies and entertainment. And 20 percent can go toward financial goals like paying down debt and saving.
The exact figures are likely to change a bit month to month. For example, some people might choose to cut down on their entertainment spending at times to make bigger debt payments or save more money. The key, though, is to write down the target percentage breakdown at least once to know what the numbers look like.
∎ Tackle your debt.
After figuring out how much money you can put toward debt payments each month, come up with a detailed plan for what you’ll pay on each credit card or student loan. The way to save the most money is to pay the minimum on each credit card and loan you have, then make extra payments on the loan with the highest interest rate, McClary says. Once that balance is paid, redirect that same monthly amount toward the debt with the next highest rate, and so on.
If your paycheck isn’t big enough to make a decent dent in your debt, think about using your free time to take on a side job, says David Weliver, founding editor of the budgeting blog Money Under 30. Weliver was in his late 20s when he started working at Starbucks and writing freelance articles to augment his main salary. That allowed him to make extra payments on more than $80,000 in debt, including credit cards, student debt and a car loan. He kept his living expenses low by sharing an apartment with three other roommates. And in just three years of making those extra payments, he was able to clear all his debt.
∎ Know your options for student loans.
Start by figuring out the total you owe in private and federal loans. If you can’t make all the payments each month, inquire first about alternatives for paying back the federal ones. Federal loans tend to be more flexible on that front. For example, those struggling to keep up with the standard payments may be able to make smaller payments based on their income. In addition, some people working in the public sector can apply for loan forgiveness after 10 years of making payments.
If you can’t afford the payments on the private loans either, ask for help. Even private lenders are starting to offer breaks to borrowers who are struggling. What’s most important is that you don’t ignore the bills altogether, since defaulting on the debt can eliminate some of these options.
∎ Start saving immediately.
It may feel easier to wait until you’re making more money to start saving for something as far away as retirement, but if you don’t start now you’ll have to save twice as much later on just to catch up.
For instance, a 25-year-old who makes $40,000 and saves a little more than 6 percent of his pay each year until he is 65 would have a 75 percent chance of having enough savings in retirement, according to the Employee Benefit Research Institute.
If that man waits until he is 40 and making $72,000 to start saving, he would need to put away 14.5 percent of his pay to have the same chances of success.
If your company will match your retirement savings, contribute at least enough of your pay to receive the full match.
If you can’t afford to put away that much yet, start small and sign up for auto-escalation, which increases your contribution rate by one or two percentage points each year.