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Step 1
Get a better bank account. If you have a credit union account through your university it is probably worth keeping open because they often have loan benefits. In addition you should have a checking account with a bank that can follow you to your first job and next city, one with enough ATMs to help you avoid fees, and maybe one that has branches near your parents so they can make quick deposits in an emergency.
Do your research and you will find most banks offer checking accounts with no maintenance fees, teller fees, and no minimum balance requirements. If your credit is good, look into an account with Charles Schwab; they refund all ATM fees and offer free brokerage accounts for customers. -
Step 2
Consolidate your Federal Student Loans. Wait until you finish your degree so you can get all the loans combined into one. Separate loans require separate monthly payments so consolidating creates a lower payment requirement. Consolidate through the federal government, the same place that gave you that Stafford or PLUS loan, because they tend to have the lowest interest rate.
Because Federal Loans have low interest rates and are weighted more favorably in Credit Scores, there is far less urgency to paying this debt. -
Step 3
Create a budget and then use it. Budgets are good for two main reasons: understanding how you spend money; using your current habits to plan future cash needs. Just having a budget, even if you don't look at it every day, is a good reality check of paycheck versus cost of living.
While you are at it, put your credit card on a budget. Keep the usage at a minimum, the balance low, and pay it on time (in full if possible). Include purchases on the credit card as part of your monthly budget expenses, which will paint a truer picture of how you spend money. -
Step 4
Establish a short term emergency savings balance before paying debt or investing. A good starting goal is to have enough savings to pay for one big emergency: the cost of a car tow, antibiotics or stitches, or a round trip bus ticket. Then no matter how much you want a new pair of shoes, more beer, or a cool road trip, don't spend the emergency fund.
Once you have this small cushion you can focus on lowering debt, saving even more, and investing in your future.
Eventually your emergency fund should be about three months' expenses (rent, groceries, gas) or more, but this can be a tall order for someone just starting out. It may be more helpful to focus on decreasing credit card debt while slowly building your savings fund. -
Step 5
Reduce your credit card debt, and focus all your extra payments on one account at a time. Then work to improve your credit score by paying other debt: pay off your car loan, pay old medical expenses, bank or private school loans, etc. Federal Stafford loans should have low interest, and since they are judged more favorably on credit scores, you can take a little more time paying these.
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Step 6
Invest in retirement and learn the lingo. If your job offers 401K or 403B plans, take advantage even with the minimum contribution, especially if they match your investment. With these and a regular IRA, money is deposited before taxes and not taxed until withdrawal.
A better alternative for young people is the Roth IRA and newer Roth 401K plans where you are taxed on your deposit but not on your withdrawal. If you think your income and assets (tax bracket) will increase before retirement (which they should), these plans have a better value. Or have both.
Your plan manager is not there to give you advice, nor is your HR department. Common belief is that young people should seek a bit more risk in their retirement investments to receive higher return; whatever you decide to do, educate yourself on some of the basics and consult a professional who can tailor their advice to your needs and goals. -
Step 7
Build an investment portfolio and diversify your money. Diversify not just the markets (technology, oil, etc.) or the vehicle (bonds, stocks, ETFs) but also the availability of your cash. Have bank accounts for immediate cash needs, 401K for retirement, and a portfolio for the longer short-term like college funds for your kids or bonds that mature in five years or stocks that pay quarterly dividends.
