When I graduated from college, I was clueless about money. When I got a job offer with a $30,000 salary, I was overjoyed. That sounded like a ton of money to me, so I was shocked when I found out I couldn’t get approved for a credit card, let alone an apartment, on my own.
Living in Philadelphia with a relatively high cost of living, lenders and landlords saw my income as too small for me to keep up with payments. It was a harsh wake-up call for me, and I spent a long time scrambling to make ends meet, all the while living with my parents because I had unrealistic expectations about what I could afford.
It was a tough lesson, and it’s one that many fresh graduates learn the hard way. To avoid going through the same experience, make sure you can answer (or at least, are beginning to learn the answers to) the following five questions:
1. How do I create a budget?
First and foremost, creating and sticking to a budget is a basic life skill that’s essential for your well-being. Although many people think of budgets as restricting, it’s really just a list of what income you bring in each month along with your regular expenses. Your expenses, including rent, utilities, transportation, and insurance should total less than your earnings after taxes. If you spend more than you earn, you’ll end up over your head in debt.
Getting on a budget was a major first step toward financial independence for me. By seeing exactly where my money went, I was able to cut corners and eliminate little extras like eating out to save money. That helped me build up my savings so I was able to afford to move out later on.
You can make a budget on a notepad or with a spreadsheet. But if you’re not sure how to get started, free tools like Mint can help you set a budget up and track your spending.
2. What do I owe in student loans?
Many college students take out student loans but don’t realize how much those loans can grow over time. Not knowing can cost you; the average borrower walks away with more than $37,000 in student loan debt. So before you graduate, have an idea of what your monthly payments will amount to.
It’s common to take out multiple loans while in school, which can be difficult to track. In my case, my loans were sold to a new loan servicer, and I didn’t know it. That made it impossible for me to make payments. It took some serious homework and frantic emails to my old servicer to find out who my new loan company was now.
If you aren’t sure about how much you owe, your loan interest rate, or who your loan servicer is, there are two ways to find out:
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- Search the National Student Loan Data System: The National Student Loan Data System (NSLDS) is an online database of federal student loans. When you enter your information, it will list all of the federal loans in your name, including the loan balance.
- Check your credit report: If you took out private student loans, they won’t show up on the NSLDS. Instead, you’ll have to check your credit report. You can check it for free at AnnualCreditReport.com. Your report will show all accounts that are under your name, including student loans and credit cards.
3. What’s my credit score?
Your credit score is a big deal. It affects everything from getting approved for an apartment to receiving a low-interest loan on a new car. You can view your credit score for free, without damaging your credit, by using CreditKarma’s Free Credit Score tool.
If you have a low score, you may be unable to get a loan or credit card on your own. In that case, it’s important to take steps to improve your score, such as paying down debt and making all of your bill payments on time.
4. How do credit cards work?
When I graduated, credit cards seemed like an attractive way to finance a lifestyle I couldn’t afford. I rationalized it by convincing myself that I needed new clothes or the latest gadget for work and that it was an investment. But I was lying to myself, and it just caused me to end up in debt. Thanks to high interest rates, my credit card balances continued to grow, too.
Your credit cards can have high interest rates; the average rate is more than 13%. If you make only the minimum payments, it can take years to pay off your balance and you could pay thousands more than you borrowed. If you choose to use a credit card, aim to pay the balance off in full every month.
5. How do I start an emergency fund?
An emergency fund has been a lifesaver for me many times over, covering everything from an unexpected flat tire to a trip to the hospital. If I hadn’t had my fund, I would have had to turn to credit cards, instead.
An emergency fund is a separate savings account exclusively for emergencies. It shouldn’t be touched for any other reason, no matter how tempting a sale or vacation sounds. Although experts recommend saving up to six months worth of living expenses, it’s important to get started as soon as possible. Even if that means just contributing $25 per month, it’s a good idea to get in the habit of saving and building a safety net.
Preparing for the real world
After surviving four years (or more) of college, you just want to celebrate, not worry about money. But as I found out, reality will come crashing down sooner rather than later. It’s a good idea to start building the groundwork for financial security — and it’s not as scary as it may seem!
If you don’t know where to get started, check out Amendo’s Money section for information on boosting your income, building up a savings account, and staying on a budget.
Originally published March 7, 2018.