For many young people, graduating from college and striking out into the real world of careers and independent living feels exciting. But when struggling to find an entry level position in a difficult economy, determining the balance between financial and personal independence can sometimes seem tricky to navigate.
Learning to live on a small salary is no easy feat, and many find themselves swimming in debt. But with a few guiding tips, financial security doesn’t have to wait until retirement. Start learning mistakes to avoid and proactive steps to take with these four points.
1. Putting Off Student Loans
Unfortunately, most recent grads have amassed around $25,000 in loans. Paying it off over the 25-year plan tacks on over $20,000 extra in interest.
Instead, work to pay off as much as you can each month. Bi-monthly payments cut interest rates because you are paying more often than once a month. Set up an automatic draft from your checking account. With most federal loans this saves 0.25% on your interest rate. Though it will mean tighter budgeting in the meantime, you will be more comfortable in the long run by deciding not to procrastinate on your student loans the way you may have procrastinated on college papers.
2. Late Payments Are Not Okay
Whether it is a loan payment or any other bill, be intentional about making your monthly payments on time. From utilities to credit card bills, student loan payments, or any other outgoing funds, establish a habit of paying on time. Apart from accruing interest, late payments tack on an extra fee.
Learn how to budget. Keep careful track of all your credit card purchases and any incoming bills and their due dates. Automatic payments are a handy tool which many people use so that they don’t forget. Being on time will help you save hundreds of dollars which would be wasted every year.
3. Credit Card Debt
At times it can feel like credit cards are a necessary evil because building good credit is important to future home, car, and other large purchases. But abusing credit cards racks up debt and builds negative credit. With interest rates as high as they are, credit card debt can have a snowball effect and quickly spiral out of control into a lot of owed money.
A fantastic practice to help protect yourself is spending only what you have. You can use plastic at the store, but treat it more like a debit by only buying things you could also pay for in cash from your account. Use a financial planner and keep a record of your purchases in comparison to your income to avoid spending more than what you have coming in. This way, you can earn good credit and maybe even some frequent flier points without running the risk of debt.
If you are already in a bit of debt, work to pay it off as soon as you can to avoid high interest piling up. In some cases, your bill might be due before your paycheck. Utilizing a title loan from a company like TitleMax can aid in paying off that debt. Title loans provide immediate cash, which can be a viable option if you can pay it off quickly with an incoming paycheck.
But before taking out another loan, make sure that you have weighed the late payment penalty against the fees of a title loan to determine which will do the least damage to your situation. You can even call the credit company to try to work something out with this month’s payment. And then you can start afresh preparing to handle the next month’s dues before they arrive.
4. Saving Later
Many young people are guilty of thinking that they’ll wait to save later in life. This often means that none of the paycheck finds its way into a savings account. After paying off loans and bills, much of what is left of the paycheck is used to go out and have fun.
Saving a portion of your paycheck, even if it is a small amount, is important to future financial security. Practicing the discipline of saving now will pay off big time in a few years.
By learning money smarts in your younger years, you will have financial peace of mind sooner rather than later.