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Sunday, October 1, 2023

Grad Guide

How to save cash without mom and dad

College graduates need to learn to manage their finances in the real world. Many will have to deal with things like rent, taxes, and in six months, student loan payments.

“It’s an important topic. It’s a transition, and it is coming,” said John C. Lopez, a clinical assistant professor who teaches personal finance planning in the Bauer College of Business. “When you step into the real world, you’ve got some commitments coming up, like expectations from employers. Your time is no longer your own.”

On the financial side, students are thrust into a world in which they are responsible for taking care of themselves, Lopez said.

“Up to this point, someone typically is providing your transportation, your housing, your support ­— your parents, or some kind of scholarship or grant. But now the responsibility falls to the graduate.”

Students can prepare for this transition by keeping themselves out of unnecessary debts, Lopez said.

“You have a lot of control over where your money goes if you stay out of debt. When the money comes in, if you are in debt, it belongs to somebody else. It belongs to the lenders,” Lopez said.

Staying out of debt lets graduates spend their money on what Lopez called required expenditures.

“Things like rent, things like insurance, utilities, food, transportation, those kind of things are required,” he said.

But graduates have a lot more flexibility in things like entertainment and travel, Lopez said. In order to keep these kinds of expenses from getting out of hand — and getting graduates in debt — he said it’s important to have a spending plan.

“I’m trying to get away from the word ‘budget’ — that has the same connotation as ‘I’m on a diet.’ Nobody likes to be on a budget or on a diet, so I call it a spending plan,” Lopez said. “You are telling your money where you want it to go: this much for rent, this much for utilities, this much for entertainment, this much for eating out.”

Another responsibility graduates face is filing their taxes.

“For students, taxation is not very complicated. They’re just coming out of school, they typically don’t have mortgages,” Lopez said. “They don’t have any high-level investments or things that could complicate tax situations. So it sounds intimidating, but it’s really not once you understand what’s going on.”

Lopez said he recommends that graduates use a tax software, like Turbotax or Quicken, which will walk them through the process of filing their taxes.

“Because students get intimidated, they just don’t do it,” Lopez said. “That’s the worst thing you could possibly do. Ignoring a problem doesn’t make it go away, it just makes it worse.”

Lopez also said it’s important to maintain an emergency savings fund for things like vehicle repairs, home maintenance, job loss and other unforeseen expenses.

“If you don’t have an emergency savings fund to cover those things, you’re going to wind up going deeper and deeper into debt,” he said.

Lopez said the emergency fund should be enough to cover about three months worth of living expenses, or about $5,000 for a recent graduate.

“Once you have an emergency fund, emergencies quit happening. The car breaks down, ‘O.K., $750? I can cover that, that’s not an emergency any longer.’ As opposed to not having that fund, the car breaks down, ‘$750. Oh my God, what do I do now? Put it on my credit card.’”

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