The Most Important Money Milestones for New Grads

Of the roughly 21 million students attending U.S. colleges and universities during this school year, 1 million will earn an associate’s degree, 1.8 million will earn a bachelor’s degree, 821,000 will earn a master’s degree and 177,500 will earn a doctoral degree, according to the National Center for Education Statistics.

So if you happen to be a recent or upcoming grad, the odds are you have three things on your mind: jobs, housing and finances.

1. Finding the Right Job

Certainly, the dollars are important, not least because average salaries for 20- to 24-year-olds have actually lost ground on an inflation-adjusted basis over the past 30 years. Even so, there are three important matters to consider first.

To start, does the work interest you? Can you see yourself at that company, school or hospital for a couple of years? Employers will give a pass to recent college grads for their first and even second jobs. Thereafter, your moves need to make sense (that is, to demonstrate increasing responsibility within a field) and the tenures should be lengthening. Recruiting and training new hires is a costly undertaking, so you can understand why no employer would want to make that kind of investment for the benefit of a candidate’s next boss.

Second on the list is environment. Look around. How do you feel about the people with whom you’ll be working? What about the person to whom you’ll be reporting? What’s the pace of the work flow? Remember, interviewing is a two-way street. So use that time to gain as much of a sense for the people in the company as they’re attempting to do the same for you.

Third—and as far as I’m concerned—the most important consideration: Will these folks help you to become more tomorrow than you are today? Will they train and mentor you? Are they setting forth a reasonably attainable career path? Given that U.S. companies are trending away from apprenticeships and professional development activities, this is a critical consideration as you map out your career.

If the answers to the preceding are all positive, take heart. Not only will you be able to look forward to interesting work with people you respect at an organization that values your involvement, you can probably count on being fairly paid as well.

2. Deciding on a Home

Once you’ve zeroed in on a place to work, the next order of business is securing a place to live. College grads who need to split the rent often use sites such as Craigslist and Roomie Match for their search. But partnering with a responsible roommate is, at least at this stage, more important than finding a soul mate: Dating either works out or it doesn’t; when it doesn’t, the parties typically go their separate ways with little or any financial entanglements to unwind.

Not so with roommates.

Landlords don’t ordinarily care if there are one, two or six people sharing the space, as long as the rent gets paid. In fact, it wouldn’t be unusual for all the roommates to be asked to sign a lease that holds each party fully responsible for the total value of the contract. The term for that is “joint and several responsibility,” and the downside can be significant.

What if four people are sharing a $3,000 per month apartment and one of them is unable to come up with the cash? Instead of $750, you and your other two roommates will each end up having to pay $1,000. That’s all the more reason to do two things ahead of time:

Do your best to thoroughly assess the character and financial capacity of your prospective roommates. Verify employment, contact personal references, do a background check and trust your intuition.
It’s also wise to establish a sacrosanct set of house rules, the most important of which should be that everyone is required to remit his or her share of the rent into a common account no less than one week before the payment is due (payroll dates taken into account). That way, a bounced check can be covered and more serious problems can be addressed ahead of time.

3. Organizing Your Finances

You’ll soon be on your own, so now is the time to devise a plan for handling all your financial responsibilities—rent, food, debt payments and so forth. I’ve written before about taking a 25% approach to budgeting as a starting point.

Assume that the first 25% of your gross (pretax) salary will be consumed by taxes: federal, state, local, Social Security and Medicare. The second 25% represents the most you should spend on rent or mortgage payments. If your annual salary is, say, $40,000, then 25% of that amount—$10,000 per year, $833.33 per month—would be as high as you should be willing to go.

The third 25% represents the maximum amount of debt service you can reasonably carry, including for the repayment of your student loans.

That leaves $833.33 per month for everything else—food, transportation, entertainment and a savings stash, which should total six months’ worth of expenses at the very least.

Can’t make that work? Then reconsider the apartment, limit your borrowing or renegotiate the payments for the loans you have in place (government student loans in particular can be restructured under a variety of relief programs). The point is that other than for your tax obligation, the money you earn is yours to spend as you see fit.

And one more thing.

This is the perfect time for establishing good personal credit habits, if for no other reason than it’ll save you money today and in the long run. For example, always make your payments on time to avoid budget-busting late fees, keep your credit cards at no or low balances and only apply for the credit you absolutely need.

Finally, be sure to check your credit bureau reports every year, not just because it’s important for you to know what the bureaus have to say about you, but also to ensure what they’re saying is true! The good news is that federal law entitles you to one free credit bureau report per year. (You can get yours at www.AnnualCreditReport.com—a site that’s run by the Big-3 bureaus: Experian, Equifax and TransUnion.) Remember to put your challenges in writing and calendar a follow up. You can also get a free credit score every month at Credit.com.