4 Money Management Strategies for New Grads

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Editor’s Note: This story originally appeared on Living on the Cheap.

Looking to pass on some financial wisdom to the future college grads in your life? We turned to Scott Gamm, author of More Money, Please: The Financial Secrets You Never Learned in School, to help you get there.

As someone who wrote a book on finance when he was in his twenties, Gamm recognizes that making financial mistakes in his youth can prove costly for many years to come, especially in a tough economic climate. Here are his top tips for getting off to a good financial start.

Plan your retirement

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Yes, retirement! It’s probably the last thing on a new grad’s mind, especially if they’re trying to start a career, but having savings is important from the start, Gamm says. “First, get $1,000 cash in an emergency savings fund as soon as possible,” he says. Ideally, you’ll want to keep this going until you’ve racked up a few months of spending, but that’s not realistic right after you graduate.

Once an emergency fund is in place, begin directing money to a Roth IRA retirement account, as well as any employer-sponsored retirement savings programs available to you. “You’ll benefit from compound interest because you won’t need that money for 40 or 50 years,” he says.

Earn credit

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Simply put, banks won’t even talk to you if you don’t have a high FICO score, Gamm says. If you ever plan to apply for a mortgage or even a car loan, you will need to prove that you are a responsible borrower. “To build up credit, open a credit card (which has no annual fee) and use that card for small purchases under $100 per month,” he says. Your goal should be to pay off the entire balance on the card each month.

Survive student loan repayment

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For federal loans, you’ll automatically be enrolled in the “Standard Repayment Plan,” which aims to pay off your loans in 10 years. “If that monthly payment is too high, contact your loan manager and ask to upgrade to the ‘extended repayment plan,’ which is a longer 25-year plan with a lower monthly payment,” Gamm says.

Ideally, however, once you’re generating more income, you’ll want to focus on paying extra for your loan to reduce some of the interest that’s added year after year.

Eliminate budgeting boredom

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Budgeting is something moms and dads do, but smart grads should count it among the “adult” things they need to start doing. “You need to know where your money is going each month. You’d be surprised how much waste you spend money on,” says Gamm.

Sharing these strategies with the students in your life will help them earn an A+ in money management. For extra credit, consider picking up a copy of Gamm’s savvy guide as part of their graduation gift.

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