Money Tips for College Grads

Finals are done, you have tossed your cap in the air and the world is your oyster. I don’t like oysters, so this statement really made sense to me when I graduated. The real world was icky, smelly and sometimes difficult to swallow. I was an economist, so in theory I understood money, but what I realized was that I understood other people’s money (the economy in general) but knew nothing of how to handle my own money. Hence the life-long quest to learn about money and to help others learn from my mistakes… of which there were many.

So what advice can I give to those who are just now starting out? Don’t follow the crowd. Most people are broke, so don’t do what most people do. The new car, the 30-year mortgage, buying everything on credit, paying the minimum on college loans – these are all characteristics of broke people. Instead, be willing to live like nobody else will so in a few years you can live like nobody else can.

Start with setting some goals. Money can be like time. If you don’t plan for it, the next thing you know its 2:00 in the morning and you’re watching an infomercial about the lasted vegetable juicer. But wait… there’s more. Without a plan for your money, you might actually buy it. So let’s set up some specific goals. You should start with an emergency fund of about $500 – $1,000. This is important to keep you from falling into a trap where you start using your credit card for everything. If you live in a high-rent area, then your emergency fund should at least cover one month’s rent. Next, decide on other goals for yourself. Do you want or need a car in the near future? Maybe you want to buy a home when you have settled into a career. Are you planning a wedding or honeymoon? I would assume at some point you would like to retire as well. Plus, don’t forget the smaller goals such as a new laptop or large screen TV? Whatever your goals, make sure you have some. You need to know why you are working so hard for so little at this stage in your career.

Once you have set your goals, take a close look at how much money is coming in and how much is going out. Understand that your paycheck is no longer play money. While you were in college you may have worked just for spending money or play money. For the first time, everything has to be paid for with your paycheck and not with student loans, etc. Once you take out state, local, federal, Social Security and Medicare taxes, then try to stretch what little is left over – you may quickly find that you will have to adjust your goals.

Maybe you need a roommate or perhaps you should move home with mom and dad for six months. These are serious considerations. If you have $200 leftover each month, then decide where it is going to go. Towards a down payment? A credit card? Student loan debt? If there is nothing leftover or not enough, then change your circumstances temporarily. By the time they are done paying for rent, car, car insurance, cell phone, utilities, food, and student loans, most recent graduates have to live more like a broke college student their first year after graduation than they did while they were actually a broke college student – mostly because the loans stop coming in and the payments have to start going out.

If you are like most graduates saddled with a large amount of debt, I have some good news. Federal student loans are the most borrower-friendly loans ever. There is a program for nearly every situation. Are you unemployed? Then you can use forbearance.  Are you underemployed? Then deferment or graduated payments could be your best bet. Is you budget simply too tight? Again, graduated payments will work. Do you want to consolidate your federal loans so there is only one payment each month? Done. There are so many options that I had to devote an entire chapter to repaying student loans in my book. Federal student loans are designed so that you can afford them without penalties no matter your situation. The key is to contact the lender upfront and let them know your situation. There are even programs that will pay off your loans for you after a certain amount of time of service but that kind of feels like indentured servitude and I would prefer to find a way to eliminate the loans early if possible.

Perhaps the best piece of advice: You cannot start out on your own where you left off with your parents. They have been accumulating money and resources for over 20 years so they may have lots of nice stuff. You are just starting out and likely have loans to pay off. You can’t expect to start off better than your parents are now. So be realistic with your expectations. You just graduated so you may have to start at an entry-level salary with entry-level work. You have to prove yourself to move up. We’ve all been there. Grab that bottom rung proudly and start your climb. There’s a reason it’s called a career ladder and not a career escalator. I know your expectations may have been higher than what reality is handing you, but it gets better very quickly if you just endure. Like I said, the real world can be a tough pill, or oyster, to swallow.

Bill Pratt is the author of several books on personal finance including The Graduate’s Guide to Life and Money

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The three authors, Bill Pratt, Mark C. Weitzel, and Len Rhodes, are industry leaders in personal financial education. Together, they have a combined 75 years of experience in banking, economics, and entrepreneurship. Now, they teach thousands of students personal finance concepts and decision making skills, author textbooks and public press books on personal finance, and help schools develop innovative personal finance literacy programs. Recently, they were instrumental in developing a personal financial management certification program for leaders in higher education. The other books in The Money Professor series include The Graduate’s Guide to Life and Money and Extra Credit: The 7 Things Every College Student Needs to Know about Credit, Debt & Ca$h. Their books, lectures, and programs give students, parents, and educators the tools and knowledge to make good financial decisions all their lives.