Being broke in college is a pretty common experience. You might not have much to your name right now, but it pays to financially prepare yourself for life after graduation. Here are a few ways to get a head start on your finances before you graduate.
Everyone's graduation experience is different. Some people find jobs before they graduate, others struggle to get by with part-time work, and yet others have no source of income at all. Of course, not everyone will be able to follow all of these tips. But I hope they can serve as a guideline to start you in the right direction.
Learn Personal Finance Basics
Many community organizations—libraries, for example—offer free workshops on money topics. Your college might even offer some free classes. Take advantage of them. The more you learn about money now, the easier it will be to make sound decisions in your near future.
You can educate yourself in other ways, too. We've written a guide to free financial literacy resources. In addition to courses and workshops, some of these include online videos, tutorials and quizzes. There are a number of financial literacy books that make complex money topics accessible, too. Some popular books are:
- Your Money or Your Life, by Dominguez, Robin, and Tilford
- The Total Money Makeover , by Dave Ramsey
- I Will Teach You to Be Rich, by Ramit Sethi
Get Rich Slowly offers a thorough round-up of 25 Essential Books About Money. As noted in the article, your public library probably carries these titles.
Phroogal founder Jason Vitug tells us that there are some specific financial basics you should learn before you graduate:
"It's important to understand key terms in personal finance such as interest rates, compounding, etc. Understanding the importance of budgeting and how to incorporate a budget into everyday living is key."
Especially if you have student loans or other debt, it'll help to learn about interest rates and compound interest.
You might also consider brushing up on:
Of course, there's much more to financial literacy, (including learning to invest) but for those just getting started, these are the areas you'll want to focus on.
Assess Your Spending
Financial site Magnetar Academy says it's a good idea to analyze your finances now, while they're still relatively simple.
"Later in life, you may have to deal with mortgages, insurance, child-related expenses, medical bills and more. By building some good habits today, you will be well prepared for tomorrow. Keep a money journal, writing down your expenses each day and analyze them at the end of the week."
Take stock of your financial habits. Your spending might surprise you. If you overspend, learn your triggers. Find your areas of weakness. This way, you can address your habits before they get out of hand. When you start paying off your student loan, it'll help to already have your spending habits in check. Check out your expenses, too. You're probably already living a pretty bare bones lifestyle. But it can't hurt to find ways to cut monthly bills even more.
Practice and Develop Frugal Habits
Living like a broke college student probably isn't that difficult when you actually are a broke college student. But most of us can stand to learn a little more about frugality. Find ways to make it fun. Magnetar Academy offers a few examples:
"For example, instead of going out for 'dinner and a movie,' how about hosting a movie night and potluck at your house? Or, instead of going shopping for a new outfit, invite friends over for a 'Trading Day,' where everyone brings one or two items of clothing or jewelry that they never wear."
Learn a few DIY skills that will help you stay frugal down the road. Look for discounts on everything you buy. Learning to be frugal and live below your means is a big part of reaching financial independence.
Start Your Job Search Early
But, of course, there's more to personal finance than being frugal. To get a head start on your money situation, focus on increasing your income, too. Easier said than done, I know.
Many grads are having an especially hard time finding work right now. It's also hard to search for a job when you're still in school and can't work full time. But LinkedIn suggests getting started early, at least by the beginning of your graduation year:
"Your goal isn't to get a job this month, but rather to lay the groundwork so that you'll have a great job when you graduate."
And Vitug suggests starting your junior year, if possible. He advises to attend job fairs, connect with recruiters and follow-up throughout the year.
"Sending an email each semester can ensure they keep you on their radar. You'll find that many recruiters can actually help you zero in on important traits and experiences they would look for in a recent graduate."
If you have something lined up before you graduate—kudos to you. If not, at least get started on the process. LinkedIn offer a few tips:
- Start conversations: Before you start the interview process, you should have intelligent discussions with people in the workforce. Your goals are to network and learn about your industry.
- Learn business etiquette: Linkedin suggests sending thank-you notes when you connect with other professionals. Learn about a company before you speak to a representative.
- Set reasonable goals: Few people find their dream job and salary right after college. Don't set your expectations too high, but you should work for a company you respect and can learn from—this will at least be a step in the right direction.
It's also important to learn how to build a compelling resume and negotiate salary. As Lifehacker's Melanie Pinola pointed out, not negotiating your starting salary can end up costing you hundreds of thousands of dollars over the course of your career.
Additionally, consider Forbes' list of five mistakes college job seekers make:
- Not applying for enough jobs
- Not networking
- Not taking advantage of Linkedin or other professional networking sites
- Applying only through the employer's website
- Not following up with an employer
Once you find your job, Certified Financial Planner David Lee says it's a good idea to start taking advantage of your employer's benefits. Learn about your company's 401(k) plan, if offered. Consider locking in a cheap rate on a life insurance policy.
"Although there's probably no need for a life insurance policy at that age, the premium is super cheap, and the chance of being accepted is quite high," he tells us.
Save As Much As You Can
Vitug adds that soon-to-be graduates should also get in the habit of saving. Granted, you might not have much to save. But even if you can sock away $25 a month, it's worthwhile, if only to develop the habit, Vitug says.
Most experts also agree: while paying off debt, you should have an emergency fund.
But it's not always that easy. Despite its importance, it's hard to build an emergency fund when you have debts to pay and/or you're not making much money.
But, if possible, start socking away as much as you can for an emergency before your student loan payments have kicked in. Find out what your minimum monthly payment will be, and try to set aside that amount for an emergency. The habit of setting aside a monthly amount will also make it easier to be prepared for the payments once your grace period is over.
Come Up With a Financial Plan
If you have a student loan or other debts, understand the details of your repayment. How much will your monthly payments be? How much will your interest be? Can you lock in a lower rate before your grace period begins? Understand your options, and then plan accordingly. You might consider the following:
- Decide on your student loan repayment plan.
- Prioritize your other debts and pick a repayment plan for them.
- Build your budget.
- Make a list of financial goals.
If you're not sure of your income, this can be difficult. But it helps to at least know what expenses to expect and have a preliminary plan in place.
"A financial plan or budget will help a student know how much their salary truly is after taxes and benefits," Vitug tells us. "It's important to know what you plan to do, where you plan to live and how you want to live. Financial planning and budgeting can help you figure those things out."
College is an uncertain time. While you might be unsure of what your near future will hold, learning more about money can only make your financial future more secure.
Two Cents is a new blog from Lifehacker all about personal finance. Follow us on Twitter here.
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