In this post, I want to outline 5 of my top personal finance tips for recent grads. It’s sad to realize that personal finance is not commonly taught in university or high school, yet it is one of the most important things to consider when you’ve graduated and are out in the real world. You’ll most likely get a full-time job, get your own space, buy your own car, and start fresh as as an adult. Money becomes much more important as you can’t rely on your parents anymore. But without the right finance tips and understanding it’s easy to waste away your hard earned money. Especially if you have student loans, it can be hard to get out of debt, and as interest piles up it’ll be harder and harder to escape it if you’re not focused on fixing your finances.
If you want to think about the future and think long term, it’s important to manage your money. Most people want to retire early and escape the 9-5, but if they don’t commit to their goals they can easily fall behind and watch their lives wash away before their eyes. It can be easy to get sucked into a job you don’t enjoy and think you’re trapped working the rest of your life in order to support yourself. What’s even worse is many people succumb to debt and feel they can’t get out. I’ve heard of suicide cases because of debt, and because of this I realized how important it is to manage your money.
Digital Nomad Quest aims to show that your finances don’t need to define you and that there are ways to 1. manage your finances, 2. build passive income streams, and 3. escape the 9-5. The first step to being financially free and location independent is to start with taking a look at your income, expenses, debt, and assets.You don’t want the stress from financial hardship to seep into your life so that every day is a struggle. You want to make sure you’re financially fit so that you can actually enjoy life and take back control.
Top 5 Personal Finance Tips for Recent Grads
1. Never Spend More Than You Make!
It’s a simple idea but it’s easier said than done. When you spend more than you make, you may encounter debt, stress, and hardships. Poor spending habits make getting up in the morning worse when you know your debt is getting larger and larger! And when you have a mountain of debt, there’s interest as well.
To make you truly realize the issue with spending more than you make, check out my article on the relationship between time and money here. You’re literally trading hours of your time for money while you’re at your day job. As you continuously spend on handbags, cars, clothes, and lavish meals, it’s as if you’re trading hours of your life for material things. The more you think about money as time and separate purchased goods as needs or wants, the more you’ll start realizing you don’t need much to be happy.
I personally carried a mere carry-on suitcase and backpack while traveling the world for 2 years. This made me understand that we really don’t need much to live well. Minimalism can make for a happier, stress free life. We strip away all the unnecessary stuff, so that you have less expensive goods to worry about, less to feel attached to, less need to compare with other people, etc.
2. Lower Your Fixed Costs / Liabilities
It’s important to think about your fixed costs and liabilities. Think about your car and home. Do you need such a big space, or can you downsize? Here are some of the common liabilities people have to think about:
- Rent/mortgage
- Car payment
- Loans
- Cable
- Internet
- Phone
- Insurance
- Student loans
You might not think that a $7/month Netflix subscription matters in terms of fixed costs. But these subscriptions can add up if you’re paying for that $5/month Medium subscription, that $6/month Hulu subscription, that $50/month gym membership, and so on. The more you can reduce these recurring costs, the more you can save!
3. Start Budgeting
In order to start lowering your fixed costs and spend, it’s important to start budgeting. When I say budgeting I mean tracking your expenditures and seeing what your monthly savings looks like.
It’s generally easier to save money over boosting your income, so by budgeting you’ll be able to see how you’re doing financially. A good way to start is by tracking on Google Sheets or Excel. And another good way to start tracking your finances is by signing up through Personal Capital where you can start tracking your net worth for free. I highly recommend this as it will most likely make you feel more invested in boosting your nest egg.
Another important thing to do is to start developing a financial plan to reduce your debt. Example financial goals may include: paying off your debt, stop living paycheck to paycheck, saving your first $1,000, etc. Savings is important for emergencies, retirement, and investments!
4. Be Careful of Bad Investments
Whenever you hear things like “act now” or “guaranteed profits”, you should consider them red flags and investigate further what kind of investments these are! It’s important to be careful about what you trust, and it’s a bad idea to invest/gamble all your hard earned savings. I’ve heard nightmare stories of people losing all their hard earned money on bad investments and having to go into foreclosure on properties. It’s crucial to realize there is no shortcut to accumulating wealth / no get rich quick scheme. You may get lucky sometimes, but usually wealth is gathered by 1. having a strong skill that allows you to earn more money, 2. building businesses, or 3. creating a diverse portfolio of investments.
5. Save early and save often
Start putting your money into the bank. Long steady savings is how people get wealthy! When you start putting your money into a bank account or tracking your net worth on Personal Capital, it becomes a scorecard and makes it easier to want to accumulate more wealth.
But of course, the bank account you own is not going to make you rich with its low interest rates. That’s why you’ll want to start investing as well and immersing yourself into more financial research. When investing in the stock market, many experts recommend investing in diversified funds or an index fund like the S&P500.
You usually want to diversify when you’re investing, and you want to make sure you buy and hold for the long term. Rather than day trade, if you’re investing for the long term it’s usually a 20-30 year journey.
Conclusion
Hope you enjoyed these top 5 personal finance tips for recent grads! Leave us a comment if you have any feedback.
