Math lesson for college grads
Millions of college seniors are interviewing for their first full-time jobs in preparation for stepping out of the hallowed halls of education and into the real world.
And with it comes a world of debt.
"These kids have it tougher than people did in the past," said Mike Sullivan, director of education for Take Charge America, a Phoenix-based credit counseling firm. "They are graduating with a lot more debt, but starting salaries are not that much higher."
The problem: To a graduate who has never paid taxes or a mortgage, a starting salary of $30,000 may seem like a fortune -- plenty to support an elegant apartment or a new car.
But those who go on a spending spree may regret it. That's because even a generous starting salary doesn't go very far when you're in debt. And graduates are more indebted than ever before.
The typical graduate owes $19,000 to student lenders, surveys say, and almost $3,000 on credit cards -- and so is paying off past spending while buying necessities such as shelter, professional clothing and a car to get to work.
"I talk to kids all the time, and when I ask them about the biggest challenges they face when starting out, they always say the same thing: They never realized how many things they would have to pay for," said Susan Coleman, a finance professor at the University of Hartford in Connecticut.
Living on your own will require economic trade-offs, experts say, but those who do it right will find it's well worth the sacrifice.
"You end up way ahead of the game if you just start out right," said Don Silver, author of the High School Money Book. "You buy yourself a huge amount of freedom."
What should be the top priorities for college graduates who want to set their financial lives on the right track? Here are a few tips.
* Save. You may think you need to pay off debts before contemplating saving, but experts disagree. They maintain that the first priority is to save, particularly for those who are offered a 401(k) plan at work. Why?
The vast majority of large employers offer 401(k) plans, which allow workers to save up to 15% of their pay in tax-favored retirement accounts. Most offer "matching" contributions, too.
Most commonly, employers will kick in 50 cents for each dollar the employee saves, according to Mercer Human Resources Consulting. So if you put $100 a month into the 401(k), you'll get $150.
