LESSONS FOR THE COLLEGE GRADUATE ABOUT FINANCES

Graduating from college is both an end and a beginning. It is the end of classes, but it is the beginning of a new phase of your life. Moving from college life to the real world requires a great deal of dedication and sacrifice—and lots of financial life lessons. There are a number of important financial lessons every new college graduate needs to know. Learning these lessons now can get those college graduates off to a great start and help them avoid dangerous mistakes.

No. 1: Not all debt is bad

There are many kinds of debt, from college loans and mortgages to credit card debt and payday loans. While few consider a payday loan or carrying thousands of dollars in credit card debt a good idea, college loans and mortgages can both be positive financial moves.

While no one likes college loans, using them to pay for an education has long-term benefits. The earning power for college graduates is still far higher than the average high school graduate, so college loans pay for themselves over time. Mortgage debt also can be a positive benefit because it allows people to build equity in their homes and enjoy tax benefits.

No. 2: Your credit score is a vital part of your life

Many young people think debt is needed to establish a credit history, but that’s not true. Taking out a personal loan allows you to develop a history of on-time payments, but so will getting a credit card, using it responsibly, and paying it in full every month.

Watching how much you spend, paying your bills on time, and not applying for credit you do not need raises your credit score—all without paying a penny in interest. There is no need to pay money you do not need to pay just to start building a solid credit history.

No. 3: Your moving expenses may be tax-deductible

If jobs are less than plentiful in your hometown, look farther from home for the right opportunity. If the job you take requires you to move more than 50 miles from home, you may be able to deduct the expenses you incur from your tax bill.

It is important to consult a tax expert for specific details, but many moving expenses are tax-deductible. That might make the decision to move easier and give you more money to start your post-college life.

No. 4: Save for retirement even if you think you can’t afford it

Many new college graduates starting their first jobs, often at salaries less than they expected, may be tempted to put off saving for retirement until their income is higher. Even so, getting started now can have big benefits later on.

The power of compounding means every year you put off saving for retirement could cost you thousands of dollars. The sooner you get started, the more you can save, and you do not have to earn a huge salary to do it. If your employer offers a 401(k) or other retirement plans, you can start saving with as little as 1 percent of your salary. Almost anyone can afford that.