Monday, March 15, 2010

How A Fresh Graduate Can Spend and Save Wisely?

My neighbor's son is graduating soon and his parents are complaining that he spends recklessly and doesn't appreciate that earning money isn't easy.

I am not surprised... if a fresh graduate is living the good life using pocket money or credit, it is hard to impress on him that such a lifestyle is unsustainable and credit card debts will destroy his future.

It is a good idea to give a fresh graduate some tips to spend and save wisely. Hopefully, these tips can help him overcome the initial fears of planning his finances:

1. Don’t spend on impulse.

I know it is cool to throw your pocket money or earnings from summer work on clothes, gadgets, furniture, etc. But resist that urge. The products you buy today will become obsolete in months, if not weeks, and you are left with something of little value.

2. Set aside 20-30% of your salary for savings.

Set up a direct deposit each month into a savings or money market account. If the money is locked up, you have less temptation to spend it!

Better yet, start an IRA or contribute to your 401K plan. By saving your money, you can watch it grow, and eventually use it to for a down payment on a home.

3. Exchange gift cards for cash.

There are websites which offer you money for your gift cards. You may not receive the same dollar value of the card, but you can take the cash and pay off debt.

Or save the gift cards and use them during the holidays to buy presents for family members; or simply re-gift them. Your relatives won’t know and even if they do, they will understand you just graduated and have little disposable income.

4. Pay off your credit cards immediately.

The best gift you can give yourself is to start your career debt-free. Think of it as an investment that yields an 24% return. That’s how much you’ll save by paying off that expensive credit card debt.

5. Get a roommate.

After years of living in cramped quarters, you may want to strike out on your own and live by yourself. That’s a noble idea, but with rent prices skyrocketing, you will reduce expenses by living with someone.

If that’s not an option, at least move in with Mom and Dad for a short time, until you are more financially stable.

6. Cut back on going out.

With your first taste of adult freedom, you might be tempted to live it up by dining out and hanging out at nightspots. Those little indulgences are costly.

Why not meet friends at a coffee bar or play tennis at a neighborhood park? You’ll be healthier, both physically and financially.

Financial lessons cannot be picked up from textbooks but it is best to learn from the experience of others and manage our finances carefully rather than going deeply into debts and struggling to get out later.