Graduating from college is a wonderful feeling. It is a young man or woman’s first foray into the ‘real world’, getting away from the rules and restrictions of campus life. As we move from college to corporate life, our lifestyle changes, and no longer anchored to the limitations of “pocket-money”, it becomes easy to lose control of our finances.
So what are some important tips for recent grads to follow as they embark upon a career? Here are some of the most critical:
Educate yourself about personal finance
Unless you are a commerce graduate who had opted for taxation and financial planning as electives, the odds are that you know really very little about managing money. The best favour you can do yourself then, is to take the time to learn something about it. While websites (including this one) are a useful resource, it would help to study some textbooks from financial planning courses offered by the CA Institute or similar.
Start Saving NOW
A lot of us think that saving is something that can be done ‘later’, after starting a family etc. The fact is, the best time to save is always as soon as possible. Start putting away a small amount right now, and you won’t have to set aside a large chunk of your money later. Even if your salary is not a lot at the moment, try and invest at least 10-15% of it into a good mutual fund or something similar.
Start paying your loans
If you have been fortunate enough to complete your education without having to take on any debt, you are of course fortunate. If you had an education loan, it’s time to prioritise paying it back. Interest costs can eat away at a significant chunk of your savings, so use any idle money you might have to pre-pay the loan, as well as check if you can opt for an accelerated payment schedule.
Avoid taking on new debts
At the same time, avoid taking on new debt, whether as a personal loan or to buy a car if it can be avoided. Tempting as it may be to go for a shiny new car or bike, unless it is absolutely necessary, there is not much point in opting for it too soon. After a couple of years in the workforce, you might find you need a different kind of vehicle altogether, and your ability to get a loan at a lower rate will also be much better because you have a credit history.
Create an emergency fund
Whether young or old, we never know when we might need a sudden infusion of funds. It could be a medical emergency or an unexpected job loss that needs you to have some money to fall back on. Either way, you should have at least 3 months living expenses worth of money saved up and available at all times. This will give you the buffer you need to find a new job or arrange for alternative finance. Start saving in small amounts right at the start of your career and when you reach the target amount, park it in a Money Market Mutual Fund or a Cash Management Fund that offers good liquidity and safety.
Get into the budget habit
We have written elsewhere on this site about the importance of maintaining a monthly budget. Writing our your expenses and matching it with your saving goals allows you to have control over your spending. This is especially true for recent graduates who, freed from the restrictions of a fixed allowance can end up spending too much of their salary on frivolous things. Write down your expenses, classify them into ‘Needs’, ‘Savings’ and everything else and do not spend more than you can really afford.
Don’t skip health Insurance
When you are young and health you might feel virtually indestructible, but the fact is that you are not. And even otherwise, remember that your health insurance premiums are lowest when you sign up for a policy at a young age. This will stand you in good stead when you are older and you have a substantial coverage at a low premium. So take that Health insurance while you are still healthy and you will not regret it!
So that’s it, then – follow these tips, but do not forget to indulge yourselfs a little either. After all, you will only be young once – but these will help you stay happy when you are not.
