New Grads: Making Good Financial Choices

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.

Budget

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.

budget2

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.

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Credit & Your Job: Why Money Matters

“You’re always going to have bills.”

This was the statement a friend made to me in college. With $12,000 in credit card debt, a student loan (I was fortunate enough to have received athletic and academic scholarships so, after 6 years, I only had $6500 in loans) it seemed reasonable. But even then something in me gave a little twitch of rebellion. A future full of debt? That sounded horrible.

Frankly, I knew squat about finances in college. My mom told me once upon a time to keep good credit because it says something about you. Problem was, I didn’t know enough to stay out of debt in the first place.

So after college I got the apartment I wanted, rather than what I’d had before—the one I could afford. Hey, I was going to have a steady paycheck. If I could live on minimum wage in college surely I could make rent now. Besides, I wasn’t going to make any other drastic changes in my lifestyle, right?

Not on purpose. But it happened. You know, vacations, eating out at pricey restaurants, movies every weekend instead of just on occasion, and anything else I chose to do on a whim. All on credit.

Credit cards

The rationale goes a little something like this: “Sure there’s only $40 in my bank account, but I get paid on Friday.” Yes, idiot, but you owe 4 (yes, four!) different major credit card companies $12,000!

The money in that paycheck didn’t belong to me, it belonged to the Big Bad Credit Card people who trespassed on campus and made me sign up for their evil plastic. And all for a free T-shirt or some other $2.00 giveaway that would compel me to in turn spend thousands. Marketing at its best.

It sounds stupid because it is. Yet unsuspecting students fall for the free whatever every day! And guess what? The bad habits that I’d developed in college didn’t go away just because I’d gotten my degree. I originally got my first credit card for emergencies. Things like Red Lobster and that cute sweater—that was on sale, thank you! I was saving money.

Right. By the time the thing was paid off—behind the other $13980 bucks—that $20 sweater at 14% interest over 1 million years is… You see where I’m headed with this.

One year I finally took a good look at how much I’d spent in finance charges—while my balance owed practically stood still as I continued to make the minimum payment due. And I got mad! $500, $600, $700 in finance charges??? I wanted to hit something. Someone. I wanted to hit…myself! How could I have been so stupid?

I needed a plan. And I made one. I wanted to be out of debt within a year. So I took every balance on my major credit cards and divided each one by 12. I added the current finance charge, even though it would get smaller each month, just to assess the damage. I was not hopeful, but I’d been promoted a few times by the time I got the revelation and, thanks to my salary as a manager, the payments were doable. I could be debt free in a year!

Well, it actually took 1 year and 9 months (there were a couple of things I didn’t say no to at the time) but I was still ecstatic! And I know without a written plan it wouldn’t have happened at all.

Why is a recruiter rambling on about finances? Because your money management matters. And not just because you don’t want to wake up in the middle of the night in a panic wondering how you’re going to make it two more weeks before your next paycheck.

It’s because many employers run credit checks.

Why? Because how you handle your own finances (which should be of great importance to you) says something about your level of responsibility. Especially if you’ll be in charge of major assets. If you can take care of your own finances chances are you’ll be just as diligent with the company’s. And, in some cases, poor credit will keep you from getting the job.

So here’s some homework for you. Keep track of your spending over the next week just to find out where your money is really going. Check out financial expert Dave Ramsey’s website: www.financialpeace.com and consider going through his course in your city.

Today I am debt free and have been for many years. I am blessed to have a husband who has the same opinion about debt so we continued to work together to make good financial decisions—including paying off our home in record time.

Trust me, when you owe no one there is a peace that surpasses all understanding. A spring in your step. You even do your job better because you’re stress free.

Oh, and in response to my friend’s brilliant statement? The only people who are always going to have bills are those who believe it.

Check out the next blog for some tips on how to make better financial decisions.