14.07.201110 Things Every College Grad Needs To Know About Money
Monday, July 18th, 2011Forbes.com
Mary Morrison, who has taught a personal finance class to Stanford University seniors for 13 years, has seen it all, like the young woman who thought paid vacation meant all her travel and leisure activities would be paid for by the boss, and the student who threatened to call the police on the work study office because it was letting the government withhold money she earned and not give it back. Morrison shared with us what she thinks are the most important financial tips of all for people starting out on their own.
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Dont make career decisions based on dollar amounts.
Think big picture. If youre offered X dollars in New York City, its not the same as the same amount in Kansas City. You have to evaluate what you want out of your career and what the benefits are of those decisions, Mary Morrison says. Know the difference between benefits and perks when accepting a job offer, too. You might think its cool to be able to throw a Frisbee down the hall, but whats that compared with dental insurance? she asks.
Figure out how much you will need up front to move and start your life.
Apartment rentals require deposits, as do some utility companies. You may need a moving van, and you may have to wait four weeks for a first paycheck. You have to figure out what youll need to live on before that first paycheck, Morrison says. Few peoples parents can write them a check for $3,000.
Know what your take-home pay is–its not as much as you think.
This starts with filling out your W-4 tax withholding form correctly and getting the right amount of tax taken out of your paycheck. You cant start fashioning a budget without knowing what you have to work with. A paycheck and the dollars into your hand are not the same thing, Morrison says. You and the married guy next door with three kids will not get the same check for the same salary.
Be realistic about your expenses and essentials.
Some students have lived in an apartment before, but after college its not a big party and eating your roommates food late at night, Morrison says. Rather its concerns like transportation, medicines, food, entertainment and incidentals. Plan everything. Many students expect to live on $50 a week for food, so Morrison brings to her class an unappetizing selection of $50 worth of groceries to show them what that money will really buy. You will not live on rice and beans. You will go to the deli. You will buy coffee, she says. You dont have to deprive yourself. Just be realistic. I dont care if they get a pet snake, Morrison says. Just know how much it costs.
Understand cash flow.
Find out not only exactly how much youll be paid, but also precisely when, and when your bills will arrive.
Keep an emergency account.
Bad things happen, and they will happen to you. Youll be sick. Youll be hurt. Life will happen to you the same ways it does to everyone else, Morrison says. Be prepared mentally and financially for this reality.
Know when to use a debit card or credit card.
I think students should have credit cards, Morrison says. They are safer from theft than debit cards, and paying off a credit card every month will help a young person build a credit history and, hopefully, a good credit score. However, for routine purchases like going out to eat, buying gasoline or going to a movie, students should use a debit card, she advises. It will protect them from the typical I spent how much this month? experience. Credit cards should be for major, hopefully planned, significant purchases.
Get renters insurance.
While youre at it, look carefully at the insurance options provided by your employer–everyone needs workers compensation insurance. Never drive with minimum liability auto insurance. Financially protect yourself from a roommate who might run off to Puerto Rico, as Morrison puts it, with a security deposit or legal agreement.
Begin contributing immediately to a 401(k) plan or an IRA account.
Even if you start off slow and modest, it will make a huge difference, Morrison says. You may miss the $50 or so you put aside out of each paycheck, but it will grow and grow and save you from panic later.
Dont be afraid to invest.
I tell them that a savings account is a risky investment, because it means youre betting that there wont be inflation, Morrison says. Diversify, diversify, diversify.