Hopefully you took some time to track your spending over the past week or two. Any surprises about where all your money went? Did anyone get angry enough to do something about that albatross around your neck? I hope so.
I get it. You just graduated college. How were you supposed to do that without racking up some bills? Well, it is possible but what’s done is done. Don’t despair, though, you can make some better choices from now on.
First things first. Again, employers might run credit checks to see how you take care of your own finances and for an indication of how you’ll take care of theirs. If you’re a manager of a store for instance, like I was, you are more than likely in charge of a million dollars or more in inventory. A company doesn’t want to take a risk on a manager who doesn’t keep track of costs and spending and doesn’t make wise financial decisions.
If you find yourself in an interview where the hiring manager tells you they’ll be running a credit check and you know your report will be less than stellar don’t just cross your fingers and hope for the best, be up front about it. Companies will take good explanations into consideration.
For instance: “I was out of work for several months and got behind. You’ll see that my mortgage/rent was paid but my credit cards fell behind. I felt it was more important to keep a roof over our heads than pay my credit cards.” If this is true your credit should reflect that. There shouldn’t be any frivolous bills (recent collections from NetFlix or the cable company for instance) or companies listed who have run checks so you can get more credit cards or you’ll lose credibility. Instantly.
Divorce can affect your finances. So can unexpected things like lawsuits or medical bills that might be in dispute by your insurance company. By sharing this information, even though it might be uncomfortable, your honesty and integrity will give the recruiter a chance to fight for you and perhaps justify making you an offer.
Making Better Choices
Here are some ways to keep your credit sound, or, if you’ve already fallen behind, help it improve over time.
Make a budget. (Check out www.mint.com to help you with this.) And keep in mind you aren’t going to sit down and whip it out one time. It will take a few months before you get it down pat and you still might find yourself making occasional adjustments. This is a challenging process, so build a little bit of fun money into it. If you’re serious about kicking those bills to the curb that will mean going out 1-2 days a week—maybe even every other week (gasp!)—instead of 5.
Set aside an emergency fund. Start with $500, just $50 a paycheck if possible. When you reach that goal go for $1000. That way when life happens—a flat tire, a hike in rent, a new transmission—you won’t go into a tailspin.
Move if you have to (& keep driving the ugly car). Or get a roommate to spread the cost. Your rent shouldn’t eat up the majority of your take home pay. If I hadn’t made the choice to move out of my fancy apartment to free up $150 each month and to keep driving my, shall we say vintage, automobile longer than I would have liked to in order to forgo a car payment it would have taken me much longer to climb out of debt.
A professional look doesn’t have to be expensive. Your new job has a professional or business casual dress code, but all you have are jeans. If you’re graduating this month and someone asks what you want for graduation, by all means ask for a suit! Beyond that, be creative to extend your wardrobe. Ladies, instead of buying a ridiculous amount of new clothing when you’re just starting out, select a couple pairs of slacks and a couple skirts, 5 blouses in different colors, maybe a print one to wear every 3 weeks or so, some inexpensive jewelry and mix and match like a bandit. Guys, get a couple pairs of pants, and a few inexpensive shirts and ties. Don’t rule out consignment shops. You might find brand new clothing with the original tags still attached or some things that have barely been worn.
Don’t skip bill payments. You might even consider calling your credit card companies to work out a payment plan. Do not give them access to your checking account. Get the agreement in writing and make the scheduled payments on your own.
Use your debit card instead of a credit card. Real time spending will keep you from getting a shock at the end of the month when the credit card bill shows up. And you’ll think twice about making that purchase. Do you really want to buy the pizza from Pizza Hut or can you buy the frozen one from the grocery store and save $8? Just remember to subtract what you spend on your checkbook register, excel spreadsheet or whatever method you choose.
Don’t put off thinking about retirement. If your benefits at your new job include a retirement plan-401k, 403b, profit sharing, stock options—take advantage of the opportunity to save early. The sooner you begin to put money away the better. Waiting even as little as 5 years to start investing can make a difference of hundreds of thousands of dollars, if not millions, by the time you retire. At the very least put enough in your 401k to take advantage of any company match that is offered.
There is much more to learn about finances, but these basic tips can help get you started. Fifteen years ago I had no idea how to climb out of debt. I only knew I did not want to spend the rest of my life owing money! If you have the same desire and determination I had learn as much as you can. Search the internet. Read books like The Total Money Makeover by Dave Ramsey or David Chilton’s The Wealthy Barber. Financial freedom doesn’t have to be an impossible dream. Implement these tips today and you’ll get there much sooner than you’d imagine.