After Graduation: Spending Your Newly-Pocketed Money Wisely

After graduationThis post is part of an “after college” series for the launch of my upcoming free ebook “Money After College.”  You can sign up for my email list to receive your free copy when it’s released in early May.

After graduation is an exciting time, emotionally and financially.  You (hopefully) already have a job lined up where you’ll earn more than you ever have in your life.  Perhaps you’ll also receive cash gifts as a graduation present from friends and family, too.  Life is great as you embark on a whole new journey in life. But, let’s come back to earth a bit before you go out right away and grab all the stuff you’ve worked your way through four years of college to get.  After all, you haven’t hit the big time yet.

I’ll admit that I’ve been guilty of going out and spending right after finishing my first four years of college.  I bought a new HDTV and PlayStation 3, which cost me over $1,000 combined.  I also bought some new clothes and other things to “reward” myself.  Before I knew it, most of my graduation gift was gone.  Here’s some tips to avoid the same mistakes that I made.

Resisting big spending mistakes

Don’t spend money just because you can.  This little blip of income in your life is going to disappear quickly, especially if you start spending money before you’ve earned it.  Before you start spending wildly, realize that just because you’re earning a few hundred bucks a week doesn’t mean that’s all fun money.

Ask yourself “Would this purchase make sense if I was still in college?” If you were like most college students out there, you probably didn’t have too much money to go around.  You might have eaten ramen or drank Natty Ice (or both, simultaneously) and hope to never have to go down that path again.  Even though you might not want to live like like a pauper any more, you should try to maintain that lifestyle for as long as you can.  It will help greatly in your ability to pay down college debt and save for retirement.

Plan your purchases wisely. Don’t buy on impulse. I enjoyed my PlayStation for about a year before I got tired of it and ended up selling it (for about half of what I paid originally).  I regret that purchase and would much prefer to have that cash in my savings account right now instead.  If you are planning on making any large purchases (> $100), think about it for at least a few days before buying.

Don’t go out and buy the brand-new fancy car. Yep, this one gets it’s own section.  I’ve seen it so many times.  If you’re trying to recover from four years of loans (and potentially credit card debt), buying a new car is one of the worst decisions you can make.  If you do need a car, purchase something a few years older that will cost a lot less.  There are lots of benefits of owning a used car.  If you’re living in a metro area where there’s public transportation, Zipcar, or bike access, you might not need to own a car at all.

Allow yourself a few nice things that you’ve been waiting to buy.  I think all life victories deserve celebration.  Graduating college is probably your biggest accomplishment at age 22, so it’s certainly no exception.  Treat yourself to a nice night out for dinner, a DVD or two, and a book to further help you plan your finances (I recommend Ramit’s I Will Teach You To Be Rich).

Save some money and start paying down any debt.  Trust me, loan payments are coming at you fast and you’re not going to enjoy it.  If you don’t have loans, there’s going to be a time in the future when you need this money and can use it on something better. Save as much as you can, and you’re making a great decision.

3 Easy Steps to Start

In 3 steps, here’s what I’d do with the first $1,000 after graduation (gifted from family/friends or earned at a job):

1. Have fun with $200.  Do whatever you want with this.

2. Put $300 in the bank in an ING Savings account.  Save this for an emergency or some other important expense in the future.

3. Open a Roth IRA and deposit the final $500 in this account. Research index funds and start investing.

This is a fantastic foundation, which you can build on with a more sophisticated savings and investing strategy.

If you’re about to graduate, how do you plan to spend?  If you’re past graduation (like me), do you have any advice?

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photo by: Werwin15

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Comments

  1. Debt Eye says:

    Great post, I love the idea of using $200 to do whatever you want. Spending and investing money wisely doesn’t necessarily mean you have to be a cheapskate. It’s important to have a good balance.

  2. Good advice. Imagine if everyone started an IRA right out college. A dream come true for me. 🙂

    • I wish I had! I’m hoping to at least encourage someone out there to do it. Maybe they’ll thank me some day.

  3. Dave @ Money In The 20s says:

    I completely agree with the don’t go buy a new fancy car! I did that and it set me back 2.5 years! That said, I refuse to go back to drinking natty light…. 4 years of that beer was 4 too many for me!

    • Anonymous says:

      Good point, Dave. Sometimes I think you have to make mistakes just to learn from them. And please do not start drinking Natty again! I didn’t mean to seriously suggest that!

  4. I received quite a bit of money from family when I graduated from college. I wasted my money on a new laptop (nothing wrong with the one I had) and tons of clothes. When I got my first job, the first thing I did was buy a car – not a new one, but still. If I could go back in time, I’d kick my former self for throwing so much money away, then I’d put it in savings and pretend it didn’t exist.

    • Anonymous says:

      Sounds just like my story.

      I like the “pretend it didn’t exist” part. I think that’s great for making sure to save money and keep it saved.

  5. The best thing that you can do when you graduate is to continue living like a college student and pay off those student loans and save money. BEST ADVICE that no one ever gave me. 🙂

  6. I wish I wouldve strayed away from buying a new car…in fact I did this after high school graduation, college graduation, and again when I received my MBA. Obviously it has taken me a lot of time to figure out financial responsibility!

  7. Again, nice tips. I moved right from college to grad school, so my spending habits remained relatively unchanged. However, I am about to finish graduate school, so this is something I’ve been thinking about a lot lately. I do plan on “rewarding myself” when I finish, but I’m still debating how to do this. I want to travel, but I don’t have the funds to go anywhere too exotic. I am considering a road trip maybe a few hours away, and just for a weekend. Other than that, perhaps some new clothes to start my “grown up” job (which I’d need anyway, right? So not really a reward, right? Guess I’m just trying to justify that spending.)
     
    Need to work on my post-graduation personal budget and determine how much I actually can afford to spend in between school and work.

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