Don't Even Think About Buying a House and Other Expert Money Advice For New Grads
As a new college graduate, you might feel a surge of exhilaration after leaving school — after all, you're a total boss ready to take on the world! But financially? You might actually be a hot mess, swimming in student loan debt, unsure of what the heck a 401(k) is, and spending your limited funds willy-nilly without budgeting.
Indiana University's director of financial literacy, Phil Schuman, points out that the first year after college will be one of the most tenuous, uncertain periods of your life, but there are some crucial actions you can take (or avoid taking) that will set you up for financial success down the road. Keep scrolling for Schuman's best money advice for new grads.
Don't take the grace period! Start paying off debt immediately.
Although you might be tempted by the six-month grace period for paying off your student loans, don't do it! Federal student loans allow you to wait until November to start paying off that debt (if you graduate in May), but the best thing to do is to begin chipping away at loans immediately. As Schuman explains, "Taking advantage of the grace period increases the likelihood that you'll absorb what you'll be paying on your loans into your lifestyle and make it more difficult for you to start paying off your loans when the grace period is over."
Start saving for retirement ASAP.
The earlier you begin saving for retirement, the more time that money has to grow. Schuman's advice is to start contributing as much to a retirement fund as possible, as soon as possible. And of course if your employer offers to match your retirement contributions, take advantage of that. "Where else can you immediately have one dollar turn into two dollars?"
Don't even think about buying a home yet.
Schuman's beliefs on the renting vs. buying debate are clear: "There will be people who will try to tell you that 'renting is throwing away your money.' Don't listen to them. There is no time in your life where things will be more up in the air than the first few years after college graduation. Your company could relocate you, you could go back to school, you could lose your job, you could find out that you don't like your job and find a different one in another city, etc. Renting provides you with the flexibility to, essentially, pick up and leave whereas owning a home means you have to hope it sells quickly. If it doesn't, you'll be stuck with maintaining a home while you're living somewhere else and, most likely, having to pay two housing expenses each month. You probably don't want that."
Phil Schuman is the director of financial literacy for Indiana University and head of the MoneySmarts program that teaches students how to be financially responsible and effectively manage student debt.