Five Financial Tips for Grads

by News Guy on May 26, 2010

Many college grads are about to become responsible for themselves financially. Are they ready for the challenges of finding work, sticking to a budget, furnishing an apartment and managing student loan payments?

Dan O’Malley, CEO of PerkStreet Financial, a progressive online bank that offers the best debit card rewards in the US, has compiled a list of five financial tips every graduate (and current student) should know. Dan is a “mathophile” who co-founded Capital One’s Payments division and launched its prepaid business. He founded PerkStreet to bring consumers more of what they want from banks.

5 Financial Tips for Students and Grads:

1. Student loans: First thing to consider is how many student loans you have.  If you are able to consolidate multiple loans with a single loan provider you can often get a lower interest rate.  Some lenders also offer discounted interest rates for setting up automatic payments.  Once you’ve secured all the discounts you can, you need to decide how much you are able to pay down your debt each month.  According to the College Board, in 2007 the average debt per borrower was $22,700.  And loans typically range from 10-30 years depending on type and amount.  It’s important to figure out how much you can pay off given your paycheck.  Game out some different scenarios on payment amounts to determine how much interest you can save by paying a little more.

2. Using credit: Credit cards make spending money easy and therefore lead to more spending.  A Dunn & Bradstreet study showed that people spend 12-18% more when paying with a credit card.  Switching to debit only can help keep you aware of spending and some debit cards even offer rewards.  PerkStreet gives 2% cash back. If you still choose to use a credit card, make sure to pay off your balance on time each month.  That way you’ll avoid the traps of interest charges and penalty fees that most credit card companies charge.

3. Finding your first apartment: Moving into your own place is exciting, especially if you’re finally moving out of a dorm or leaving a place that had too many roommates. But it’s important to bear in mind all the costs.  Beyond the obvious things like rent and utilities, there are less obvious costs.  For example, there’s the question of transportation.  If you’re looking at a place near public transportation, that could mean you won’t need a car.  Sound painful to give up the freedom of your own car?  Well according to the Bureau of Labor Statistics, 25-34 year olds spend $5,600 annually on car related costs, not counting the cost of the car itself.  That’s effectively adding $470 a month to your rent..

4. New vs. used car: This is all about depreciation.  When you purchase a new car, you pay a heavy price for that new car smell.   Let’s say you decided to purchase a Ford Focus for the list price of $16,290.  Edmunds calculates that in your first year the car would depreciate $3,400 and $9,000 over the first 5 years.  With a used car you’re still going to have depreciation, but by avoiding the first year of ownership, you save a fair amount. Buying that Ford used will result in the first 5 years depreciation coming to $6,000. That saves you $3,000.  Is that new car smell worth three grand? Many cities now have car share programs that let you drive a car when you need it for a reasonable monthly subscription fee plus mileage. This way you have a car when you need it and avoid maintenance costs and the cost of renting a garage.

5. Save early, compound often: Carving out money to save is good and is a habit that once you start, you’ll benefit from for as long as you keep it up.  The numbers are pretty big.  Say you invested $10,000 when you turn 21, make no other deposits and get a constant rate of return of 7%.  When you retire you’d have $196,000 in the bank.  But if you waited until you were 35 to start?  You’d have only $76,000 in the bank.  You’d be leaving $120,000 on the table because you missed out on all those early years of interest.

About PerkStreet

PerkStreet is the progressive online bank that sets itself apart from other online banks by taking the money that the big branch banks spend on building and maintaining those branches and gives it to the customers. Customers are rewarded for spending wisely with points that can be redeemed for cash back or fun treats like Starbucks coffee and iTunes music. PerkStreet offers the most fully-features FREE basic checking account in the US, a debit card with the most rewards anywhere and access to the largest network of FREE ATMs in the world.

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