As a recent graduate, I know first-hand what it is like to be naive and uneducated about finances. Seriously, sometimes when my aunt (who works for H&R Block) talks to me about my taxes, I think I black out. I pull a Will Ferrell in Old School; I actually leave my body and have no idea what was said…
I’m pretty sure I’m not the only one who has this reaction when it comes to “money talk.” Many students are drowning in debt from student loans, and with the help of little plastic cards and a lack of knowledge about budgeting and expenses, that debt can grow. This is not the position you want to be in while you hunt for your first job, a job that very well may not pay you enough to cover cost of living and student loan payments. In Kelli B. Grant’s article for CNBC “Six College Courses that Help Grads Land Jobs” she states the findings of the U.S. Bureau of Labor Statistics (BLS). According to BLS data, there were 284,000 Americans with a bachelor’s degree or higher working for minimum wage in 2012.
The Money Issue V.4, published in February 2013, addresses the fact that until the recession, there was “no curriculum to educate the next generation about financial tools. We were focused on fixing the problem, not understanding why we were in such a mess in the first place.”
Unfortunately, there is a lot of speculation about whether or not these programs actually work. In his article for The Washington Monthly, “Financial Literacy Doesn’t Work,” Daniel Luzer discusses the failings of both financial literacy classes as well as the means by which we measure their success.
Senior Associate at ideas42, Katy Davis, prefers the term “financial capability” to “financial literacy” because she does not believe that “simply providing more financial education for youth/young adults, or throwing more information at them, is the answer.” She believes that along with a general knowledge of finances, individuals need to be helped putting that knowledge into action.
She describes the results of a study of low-to moderate-income families completing the FAFSA (Free Application for Federal Student Aid). There was a significant effect on submission and enrollment rates when families were provided with assistance as well as information. There was no such significant effect when families were provided with information, but were offered no assistance while filling out the forms and submitting them.
Davis points out that, “We need to remember that human behavior change is actually much trickier than we think, and providing information alone is often not enough.”
If only there were a magical, financial advising genie that sat on our shoulder, guiding us through each tax return, bill payment, and purchase we made. Unfortunately, most of us are navigating the turbulence of money management by ourselves so we have to discover other ways to keep track of our spending.
Davis explains how she manages her personal finances, “My financial modeling background and general Excel nerd status has prompted me to create a monster spreadsheet model of my financial life. I also automatically split my income into three different buckets (bill payment, savings, and discretionary spending) so that I can track the amount I have left in my spending budget at any given time, while automating all of my bills and savings. Clearly, this might be overkill for some people. But I do think it’s important to test out different approaches and figure out what tools work best for you.”
Though my relationship with Excel is not so intimate, I personally understand the benefit of the separation and organization of funds. After graduating from the University of Redlands in 2012, I moved back home and because I was not paying rent, sorted the money I was earning into different categories. Each month I would put money toward utility payments, car payments, groceries, future rent, travel, spending money, and an emergency fund. Without these savings, I would never have been able to move to San Francisco to start my life here.
Of course there is a lot more to handling your money than just categorizing it and the thought of managing your finances can be pretty scary. To make it easier on you, here are some simple steps you can take to become more money-conscious.
1. Learn the Basics
Even with the speculation on the success of financial education classes, there are still ways to get a better understanding of what’s happening with your money.
“Knowledge is definitely the first step—but don’t read a Suze Orman book and then call it a day. There are a million great books out there to read about your finances, and I’ll leave it to you to do the Google search. I recommend that you get a couple of those books and use them to create an action plan for your financial life with distinct steps and milestones that you want to achieve.” – Katy Davis
Career Attraction answers the “Top 5 Questions Asked of Money Crashers on Budgeting for Recent College Grads.” These questions range from hidden expenses to the importance of an emergency fund.
Simple.com allows you to download an app that will help you to keep track of your finances on the go. Since many of us recent grads might as well have our phones surgically attached to our bodies, this app is perfect for helping us keep an eye on our budgets.
Saltmoney.org is great for students or recent graduates. With advice on student loans and debt, it can really help you come up with solutions for the money issue that work for you!
2. Avoid These Mistakes
Spending emotionally. Young Finances’s post “Common financial mistakes you make in your twenties” gives us a rundown of some money mistakes (like feeling you need to break the bank for an over-the-top wedding) made by many young adults. By avoiding the temptation to spend on these things and in this way, you can save yourself a lot of trouble and a lot of money.
Having more than one bank account and credit/debit card. Although some of the information in Nancy Anderson’s article for Forbes, “Going Extreme in Simplifying Your Finances Brings Extreme Results” applies more directly to older generations, the main message of her post applies well to ours. SIMPLIFY. Especially as a recent graduate, there is no need to have more than one credit card or more than one set of checking and savings accounts. Thinking you need these extras can make it very hard to keep track of your spending.
Bringing your credit/debit card out with you. This one comes from personal experience. If you’re anything like me, you love to have a good time and to make sure everyone else is having a good time as well. A night out can lead to “Oh! I’ll get this round,” making sure that everyone has a drink and a ride home. Fast forward to waking up the next morning and checking your bank account to discover you spent $100 on drinks for everyone… Yes, it was nice of you, but it was NOT nice to your bank account. Instead, go to an ATM and pull out an allotted amount of cash you are okay with spending that night. Then, LEAVE YOUR CARD AT HOME.
Letting FOMO convince you to spend what you don’t have. Another mistake that can send you into debt or at least to $0.02 in your bank account is having a FOMO mentality. Yep, as displayed in The Daily Muse’s post, “How FOMO Can Ruin Your Finances,” by Karyn Polewaczyk of LearnVest, this mentality can do some serious damage to your purse.
3. Automate Your Financial Life
I’m pretty sure everyone will agree that saving money is never as fun as spending money. So here’s what Davis suggests:
Set up automatic transfers into your savings account so you don’t have to think about it.
Never pay a bill late—set aside a sufficient cushion in your checking account so that you can automate your bill payments.
Set up alerts on your account that will tell you if you go below a target balance. Try out some online budgeting tools. Make life easy on yourself.
Figure out how to commit to your plan. Identify key events in your life when you will refer to your plan (getting a new job, getting an apartment of your own, starting to repay student loans, tax refund season). Set calendar reminders to check on yourself.
Choose a “finance buddy” (or two) and put a date on the calendar every few months to get coffee together and check in on your progress.
“If something doesn’t go as planned, don’t beat yourself up and avoid your plan—be flexible and adapt your plan to life’s changes as they come,” Davis says, reminding us that sometimes we can’t control every little thing in our lives, but we can’t use that as an excuse to lose our budget.
Here are some resources that can help you to set up your own budgeting plan.
Jenny Blake of Life After College created a simple 4 Step Budget that is a great template for recent graduates to use.
J. Money’s REALLY sexy budget ideas is an entire blog that makes the thought of budgeting a little less scary and a little more, well… sexy!
Try the site called Mint.com. This site makes it easy to understand and manage your finances. The best part? It’s free!
Also, Davis recommends getting a credit-builder card to build a credit score and learn to pay it off each month without accumulating interest; building up an emergency savings reserve equivalent to three months’ expenses; or once you’re employed, enrolling in a 401(k) plan for retirement.
After reading this post, you may not be an expert on finances, but you now have some tools and tips to help you avoid that painful phone call home begging for more money because you accidentally spent your paycheck on concert tickets and now don’t have enough to pay for rent.
Homework time! We want to know what works for you! Try out some of these strategies and leave a comment telling us which resources and actions made a difference in managing your finances.