5 Best Money Decisions I Made as a Recent Grad
Set up your financial future for success by doing these 5 things
If you had asked me what my best financial decisions were as a 20-something recent graduate, my answer would probably be pretty lowkey. Something like “I google an item and shop around for the retailer with the best price before I buy it” or “I’m only allowed to buy coffee from the coffee shop on Wednesdays.”
Sure, decisions like this make an impact, but I made other financial decisions as a recent grad that had a much larger positive impact on my financial future.
Opening a credit card
As soon as I graduated college and started my first job, I opened one credit card. At the time, my decision was mostly to get points on my purchases, but it ended up being one of the most beneficial financial decisions I made.
One of the most important factors in your credit score is the length of your credit history. I now have almost 10 years of credit history to help me apply for mortgages and get lower interest rates, which could save me tens of thousands of dollars in a lifetime.
If you are organized and can keep track of multiple accounts, what the reward rates are, and remember to pay them off each month — great! I’ve heard of people writing on the cards what categories to use them on with the highest cashback return. I keep track of all of that information in my head and use whatever card will give me the most in rewards.
However, not everyone is that organized. If you fall into that category, open one credit card, set up automatic payments, make one small purchase every month, and pay it off to build your credit history.
Opening a 401k
When I started in the workforce, I didn’t understand investing or how much I needed to save for retirement (Spoiler: No one really knows how much they will need for retirement.)
I did understand that my employer offered a 401k match and that you should contribute at least as much as the match. It’s free money.
Those few years that I saved for retirement but didn’t quite understand what I was doing added $50,000 to my retirement portfolio. With 30 more years to grow, that’s a substantial addition to my retirement income.
Buying a House
One year into my real-world work experience, I decided to buy a house. I lived in an affordable area, where real estate had not recovered from the Great Recession, so I was able to buy a house with an FHA loan and 3.5% down. My closing costs and down payment came to under $5K.
It’s not possible for everyone to make an investment like this right out of college. For one, the real estate market is in a much better state than it was 10 years ago, and this competitive environment means higher prices. Also, homeownership is not for everyone, whether you want to have more flexibility to pick up and move or just do not want to deal with the responsibility that comes with owning a home.
I’m also surprised at how often people write off buying a home because they do not see themselves living in an area long term. I didn’t live in my house long term! I lived there two years, hated it, moved, and got a tenant to pay my mortgage. Even though I was renting after that (and still do), I continued to build equity in my investment. That equity paid for a new investment property once I sold the first home.
Maybe homeownership is not for you right now, but start to save and improve your credit in case it is for you in the future.
Taking a pay cut — to go car-free
Remember how I hated living in my house? I wanted to live and work in a walkable downtown. So I took a pay cut to be able to live downtown and walk to work every day.
How is taking a pay cut one of my best financial decisions? I was already living in downtown Chicago, and between my car payment, insurance, parking, gas, and tolls to get to work, I was spending almost $1000 a month.
Even though my new job paid a few thousand dollars less in a year, I was saving nearly $12,000 a year by eliminating my commute and selling my car.
Creating an account on Mint.com
One of the best financial decisions I have made was to make an account at Mint.com. This is not a paid plug for them, and there are lots of similar tools out there. You could even make your own spreadsheet to do everything that Mint does, but I find their tool a lot easier to use (and it’s free).
I created an account at Mint in 2013, loaded all of my accounts, and set up my budgets. I was not diligent about sticking to these budgets until a couple of years ago, but I still consider making that initial Mint account one of my best decisions.
I find it motivating to log in to Mint and watch my overall net worth grow that it motivates me to stick to my new financial goals. Because I’ve used the tool for so long, I can look back at when I had almost nothing.
I think a tool like this can be useful to motivate paying off debt, whether you print out a debt payoff chart or track the number in a spreadsheet. Visually tracking your progress can help you stick to goals long term.
While I made many money mistakes in my early 20s, I made a few small decisions that set up my financial future for success. Contributing a few thousand dollars to your retirement account and paying off your credit cards every month might not seem like a lot, but it can have a hugely positive effect on your financial life down the line.
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