As an upcoming or recent college graduate, your mind is chock-full of knowledge and ideas that will help you thrive in your newly-minted professional career. It’s tempting to let thoughts of long-term money matters fall by the wayside as you establish yourself in a new role, but doing so can cause long-term damage to your financial future. To make sure your money works for you in the long run, add a self-taught course in money management to your list of priorities. Think of this article as your study guide and use it to prepare for retirement’s final exam. Instead of a good grade, however, you’ll get long-term financial security if you pass.

You don’t have to be a CPA in order to practice good money management. All you need is the desire to educate yourself about effective savings and investment strategies, as well as a method of tracking your money. To get started, read the following tips to help you take charge of your financial future:

Track Your Spending, Establish a Budget and Determine Financial Goals

In most cases, becoming a college graduate also means you have to pay your own bills. You may not have had to pay for your expenses while getting an education, but once you graduate you’re considered a full-fledged adult.

In order to get financial control, you need to figure out how much money you make versus how much money you spend. You also need to know where your spent money goes and how much you are spending on each specific item. The good news is that you don’t need to buy a financial software program in order to do this. If you have Microsoft installed on your computer, you can use Excel to create a spreadsheet for tracking your finances. There are also free online money tracking sites you can use – try, or

Once you figure out where your money goes, you’ll be able to create a budget so that you can live within your means. Creating a budget allows you to plan ahead, which is especially important when you have monthly bills to pay. Missing payments can extensively damage your credit score, which will negatively impact future financial options such as buying a car or obtaining a mortgage.

You can also spot wasteful spending habits that need to be changed. For example, you might find that your daily coffee habit is eating away at your income. Instead of handing over $5 dollars to your local Starbucks every morning, you can dust off your coffeemaker at home and put the extra money in a savings account. Due to compound interest, you will end up earning even more than you saved. Use these savings for building up your retirement fund or other long-term financial goals.

Do Your Homework: Checking and Savings Accounts

Many incoming college freshmen open a checking and/or savings account prior to their first semester. Other students wait until after they graduate to open an account in their name. Either way, now is a good time to conduct research on the types of checking and savings accounts that are available to you through different banks. What fits your needs as a college freshman may no longer work for you as a young professional, and it might be in your best interest to switch to a new type of account. For those of you looking to open your first account, it’s equally important to shop around. Knowing your options will allow you to choose an account that offers the best incentives for your lifestyle and current financial situation.

You can use this site to research available account types by clicking on either of the following links:

Compare Checking Accounts

Compare Savings Accounts

Save At Least 10 Percent of Your Monthly Income

Once you have a checking and savings account that suits your needs, make sure to set up a consistent savings schedule. Along with other investments, you should regularly set aside a certain portion of your income in a savings account for emergency funds and retirement. The amount of money in your emergency fund should equal at least three to six months of your income. Building up an emergency fund is especially important during these tough economic times and can help you stay afloat after an unexpected job loss or other financial crisis. As for your retirement fund: save as much as possible. Financial planners recommend putting at least 10 percent of your income in a retirement account when you’re in your 20s and 30s, and more as you get older. Findings from a recent T. Rowe Price study determined that the average person needs to save at least 15 percent of their salary – before taxes – in order to build up retirement funds that equal 50 percent or more of their current salary. This percentage increases if you take away Social Security and pension payments.

When it comes to making your money work for you, time is your biggest ally. You may not be able to set aside much if you’re just making ends meet, but it’s important to begin saving as soon as possible. The sooner you start, the more money you will make in the long run. This is due to the miracle of compound interest, which basically works like this:

The money you put in a savings account generates interest. This interest increases the total amount of money in your account. Because the total amount of money in your account has increased, the amount you earn from interest payments also increases. Due to the compounding effect of time, the earlier you begin saving the less money you’ll need to save overall in order to reach your financial goals.

Pay Off Debts Quickly: Why Compound Interest is a Two-Way Street

Compound interest can work against you as well, which is why it’s better to pay off all debts that charge you interest ASAP. Especially avoid racking up credit card debt; if at all possible, pay off your monthly balance in full. Credit cards should be used to build up good credit, not as a crutch to buy things you can’t afford. The credit card companies make money when people fall into the trap of thinking that credit is the same thing as free money. It isn’t, and it will cost you a pretty penny if you treat it this way. It’s also to your benefit to pay off student loans as quickly as possible. Increase the amount of your monthly payments if you can afford to do so, because paying off your student loan ahead of schedule will reduce its overall cost. By keeping debt to a bare minimum, you’ll be able to increase your bottom line rather than someone else’s.

Take Advantage of Investment Opportunities

Many upcoming college graduates and 20-something professionals have limited funds. As a result, your investment options may be somewhat limited during this phase of your life. Current economic conditions don’t make things any easier. Even if you’re strapped for cash, however, there is one investment option you can easily take advantage of – your employer’s investment plan. Whether it’s a 401k, IRA or profit sharing plan, almost every employer offers one that you can participate in. This is an easy way to start investing for the long-term. To make sure you get the most benefit possible out of your employer’s plan, contribute the maximum amount under the terms of the plan. For example, if your employer offers a 401k plan that will match 50 cents on every dollar when you invest up to 6 percent of your salary, make sure to invest all 6 percent to get more bang for your buck. If you only invest 3 percent, you’re essentially rejecting free money from your employer. Most employers also subtract your investment contributions from your paycheck, meaning it’s already taken out by the time you receive it. The result is that you don’t have to give up money that’s already in your pocket in order to invest, and it won’t be missed if you don’t include it in your budget.

Once you are more settled in your career and start to make more money, you might want to look into other investment options as well. With the current stock market in such poor shape, it’s easy to assume that it’s not worth the trouble or risk to invest. It’s true that investing is riskier than simply putting money in a typical savings account, but higher risk also means higher reward.
According to the United States Automobile Association (USAA), an insurance agency that offers financial planning services, the average bank savings account pays 3-4 percent interest per year. The average stock, on the other hand, has earned an average yearly interest rate of 10.7 percent since 1930. USAA also points out that while savings are safe and guaranteed, investments have the ability to dramatically increase your wealth.

You shouldn’t put all of your extra money in investments, and most investments are meant to be long-term commitments. If you currently live on a shoestring budget, you should probably stick to your savings account and an employer-based investment plan. It’s better to embark on riskier investment options once your finances have some wiggle room. If you’ve already gained solid financial ground, however, the National Endowment for Financial Education provides a basic roadmap of investment types.  (You can also view this site’s list of available CDs by clicking HERE.)

Now that you’ve looked over these money management tips, you’re ready to make your way toward a fiscally sound future. With any luck, you’ll manage to ace every monetary test you encounter.

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