Spring is in sight, and right about now, you’ll see that anxious look on the faces of college seniors and other young adults about to face the real world for the first time. Even if they’re fortunate enough to have a job lined up, they are far from secure financially, and often have no idea how to handle their finances.
If this is you or someone you know, adopting these financial habits now will take the stress out of newly independent adulthood and pay off big in the long run.
1. Create a Spending Plan: A.K.A. Your Budget
It doesn’t have to be complicated—it’s just about listing and keeping track of all your expenses and income on a weekly or monthly basis. It may not be pretty, but it’s better than the stress of not knowing your financial status. Also, there are plenty of great budgeting tools that are easy to learn and use. A budget is key to gaining control of your spending, and a sense of control as you face the real world on your own for the first time will really reduce your anxiety.
2. Follow the First Rule of Personal Finance: Pay Yourself First
Begin building up your emergency savings right away, even if it’s only 20 or 30 dollars a month. Save at least 10% of every dollar you get from any source. This money should go into a fund for emergencies—i.e. job loss—only, and should be separate from all other savings and other accounts you have. Click here for dos and don’ts of creating and maintaining your emergency fund.
The earlier you get into the habit of paying yourself first, the easier it becomes, and the more secure you’ll be in the long run. Build these savings into your budget. It’s only smart to face the real world with a financial cushion, should you have to deal with an unexpected setback.
3. Attack Your Student Loans—or, at Least, Don’t Ignore Them
If you have student loans, explore your repayment options, and exercise them, if you have to buy yourself time or reduce your payments. Whatever you do, don’t just ignore them. Not only are they not going to go away, they will just become bigger, thanks to interest and penalties, and even more intimidating over time. Besides, ignore them for too long, and your lenders may just take action and garnish payments from your paycheck, anyway.
Staying on top of your student loans is also important for another reason: protecting your credit, which can impact everything from employment consideration, to renting an apartment. It is much tougher to face the real world with poor credit.
4. Pay Your Bills—and Don’t Abuse Credit
Yes, paying your bills when they are due matters, as much as it matters to you that you actually get paid on pay day. In addition to avoiding late fees and other penalties you can’t really afford, 35% of your credit score is based on your payment history. (Click here to learn the other components of your credit score.)
Also, don’t abuse credit by using it to pay for things you don’t have the cash for. Keep credit card balances to no more than about 30% of the credit you have access to. That means if you have a credit card limit of $1,000, do your best to limit your balance owed to under $350.
5. Don’t Pass Up Job Benefits
If and when you get a job, don’t skip the employee benefits, including health insurance and making contributions toward a retirement savings account. Sure, your take home pay will be smaller, but the benefits are more valuable over time—especially if you get sick or injured.
The Bottom Line
The longer you put these off, the more costly it will be to you over time, and the more you will regret it. Bite the bullet and adopt good money habits early. You’ll get used to doing it sooner, and they’ll pay off in the long run. Best of all, you’ll be able to face the real world with optimism, not fear.
Black Enterprise Executive Editor-At-Large Alfred Edmond Jr. is an award-winning business and financial journalist, media executive, entrepreneurship expert, personal growth/relationship education coach, and co-founder of Grown Zone, a multimedia initiative focused on personal growth and healthy decision-making. This blog is dedicated to his thoughts about money, entrepreneurship, leadership and mentorship. Follow him on Twitter at @AlfredEdmondJr.