As "Pomp and Circumstance" plays on graduation day, you'll probably reflect on how much you learned in the classroom and the successful career college has prepared you for. But chances are your school didn't include real-world financial tips for new grads as part of its curriculum.
Class of 2015, you don't have to stay in the dark. Mark Waldman, an investment advisor and former personal finance professor at American University in Washington, D.C., is here to give you one last class: personal finance 101. Follow his advice to set yourself up for financial success now and for decades to come.
1. Spend like a college student
After years of cafeteria food and living with loads of roommates, getting your first paycheck might make you feel like you've won the lottery. But don't start spending like a Kardashian. You've come this far living on a student's budget, Waldman says, so do your best to stay frugal. For instance, that might mean living with your current phone for a while, he says.
"Buy the generation that's going out and get a great deal on it," he says.
Use a budgeting app to manage your daily expenses and to keep an eye on where you might be spending too much. One good rule of thumb is to keep your housing costs to less than 30 percent of your income if you can. Focus putting the majority of your money into savings or paying down debt, treating yourself occasionally with a dinner out or a day trip with friends.
2. Make a plan to pay off student loans
Almost 70 percent of graduating seniors at public and private colleges left with student loan debt in 2013, according to the Institute for College Access and Success. These students owed an average of $28,400 in combined private and federal loans. For many grads, that's an overwhelming number. How do you even start to pay it down?
Around the time you graduate, you'll be required to complete an exit counseling session for any federal student loans you took out. You'll pick a repayment plan, or the amount you'll pay each month for a set number of years. The U.S. Department of Education's Repayment Estimator will help you figure out what you can afford, and what plans you're eligible for, with your monthly income. For private loans, get in touch with the bank or financial firm that lent the money to you -- like Sallie Mae or Wells Fargo -- to find out your repayment options.
If you have a good first job and a solid income, consider refinancing your student loans. Some private companies and traditional banks offer potentially lower interest rates for grads who meet their qualifications. You can refinance both private and federal student loans, but make sure to read the fine print. The government offers borrowers several deferment and forbearance options on federal loans that private refinancing companies might not give you.
3. Cut down on other types of debt
If you know you'll have monthly student loan payments for a while, try not to take on additional debt. Credit card debt, mortgages and car loans will keep grads from saving or being flexible throughout their 20s, says Richard T. Berman, director of the Office of Career Exploration & Development at Denison University in Ohio.
"That will limit their options to stay nimble in the first five years, when a lot of people change gears at least once or twice and go back to graduate or professional school," he says.
Having a credit card is important for building good credit. But the best way to use it as a new grad is to make small purchases regularly and pay them off right away. Don't carry a credit card balance or load yourself up with additional monthly payments while you're just getting your financial footing.
4. Open a retirement account
Now that you're being frugal and responsible with student loan payments, you can devote your funds to a long-term savings strategy. Although retirement might sound far away, saving while you're young will give your money lots of time to grow, Waldman says.
"Every dollar you put away in your 20s is turbocharged compared to every dollar you put away in your 30s and 40s," Waldman says. "It would take an asteroid hitting the planet to keep you from having a lot of money later on."
Also, you may not be able to rely on Social Security or a pension fund like your parents can, he says, so make sure you open a retirement account now. If your first job offers you a 401(k), or an employer-sponsored retirement account, contribute to it as soon as you start working -- especially if your employer offers to match your contributions with the company's own funds. A Roth IRA is a great option if you don't get a 401(k) at your job, you're self-employed or you're still looking for work.
5. Invest (we're serious)
Entering the stock market might sound scary, but the potential to watch your money grow should ease your fears. "Don't wait to get your student loans paid off to start investing," Waldman says.
You'll also most likely make more in the long run if you invest than if you simply sock away extra money in a low-interest savings account or certificate of deposit (CD).
"As a long-term investor there's little doubt that you ought to be in stocks as opposed to any other kind of financial investment," Waldman says.
Once you've got your retirement account and debt repayment plan squared away, open a brokerage account, which lets you trade stocks, bonds and other financial instruments. There are many low-cost online brokerage options, though some have minimum initial deposits. Your Roth IRA can serve as a brokerage account, too.
Waldman says the easiest way to invest is to put your money in an index fund that mirrors the performance of the S&P 500. The S&P (Standard & Poor's) 500 is a stock market index that tracks the value of stock in 500 big companies listed on Nasdaq and the New York Stock Exchange. An index fund is an investment fund that will go up or down in value based on how well the overall market is doing. Waldman says these funds have a good record of long-term payoffs, so he's recommended them to his students in the past.
"Over a long term time frame they are far better off in an index fund than in any other fund I can think of," he says.