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Advice for New Graduates

As we head into graduation season, there will be pomp, circumstance, and the chance for dreams to start coming true. As your children or other loved ones head out into the "real world," here are five tips to help them get off on the right foot, financially speaking.

We're in the middle of really tough economic times right now. If this recession goes on for one more month, it will be the longest one since the Great Depression. The future is uncertain. Like a boxer, you want to stay light on your feet so you can take advantage of career opportunities whenever and wherever they appear. This means that you must stay away from purchases with big fixed monthly payments (homes, cars, electronics). If you get your dream job in another city, you want to be able to have the financial flexibility to move. Alternatively, if you get your dream job, but it pays a little less than what wanted, you want to be financially stable enough to take it.

Keep fixed costs low for maximum job mobility:

  • Avoid credit card debt like the swine flu: This stuff is toxic. We've said it before and we'll say it again if you put something on your card and pay just the minimum monthly payment you double the purchase price. If you can't pay for it in full when the bill comes at the end of the month, you can't pay for it period.
  • Pay your bills on time. Another precious asset is your financial reputation, also know as your credit score. Credit scores affect everything from insurance rates to whether someone will rent an apartment to you, and even if an employer will hire you. There are many different factors that go into the calculation of this score but one of the easiest to control right out of the gate is simply paying your bills on time.
  • Start saving for your retirement now. Save is one four-letter word that you'll want to use early and often when you get out of school. Let's say you want to have $1 million in retirement savings when you're 65 years of age. If you start saving when you are in your early 20s you can achieve that by setting aside $300 a month (theoretically assuming a 7 percent average annual return). Let's say you wait instead until your late 40s to start thinking about retirement you'd have to save $3,000 a month to get to that $1 million assuming the same per year growth of your money. A little sacrifice now will go a long way towards giving you the future you dream of.
  • Ask your parents what they wish they had known about personal finance when they went off to school. The point of going off to college is to kickstart the process of life-long learning. What better place to keep that skill sharp than within your own family. Your parents may have some very good advice of both what they think they did right and wrong, that you can learn from and hopefully do even better with your own money.

If you are part of the Class of 2009, you will enter into the world at a unique period in time. As optimists, we think it's a turning point for the better for our society in many ways. One of the best ways you can prepare yourself is to make sure you're positioned to take advantage of the upswing in the economy (whenever it happens) is to use these five steps to get off to a solid start.

 

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