Personal Finance: Financial advice for college grads

Photo — Please put this mug shot of Chris Hopkins of Barnett & Co. in our system to use every other Wednesday when it will run with his column.

Congratulations, graduates, you did it. All that hard work has paid off and you are ready to embark on the next phase of your life. As you enter the working world, consider a few simple but extremely powerful financial habits to cultivate now that are practically guaranteed to repay you many times over.

Start out with smart use of debt. Credit is a tool, but like any tool it must be used correctly to get the job done. Establish a solid credit history early by applying for one or two cards. Make a few routine purchases each month, and be absolutely certain to pay off the balance completely each cycle. There is no better way to build a strong credit record that will be essential for later, larger purchases like a home.

photo Photo — Please put this mug shot of Chris Hopkins of Barnett & Co. in our system to use every other Wednesday when it will run with his column.

Far too many young adults start out with a tremendous handicap by amassing too much debt early on. Nearly two-thirds of graduates carry a backpack full of student loans, with an average balance of $37,000. If you have college loans, be sure to understand the repayment terms now that you are out of school, and attack the outstanding balance with a vengeance. If you find yourself unable to meet your payment obligations, contact the lender immediately to arrange an accommodation. Remember that student debt is not cancellable even in bankruptcy, and the interest stacks up quickly.

Resist the temptation to reward yourself with a brand new car or expensive vacation if it means running up debt. And don't fall into the trap of making just the minimum payment; that is a recipe for eternal servitude.

Begin saving today. Retirement no doubt seems a thousand years away. The great thing about a goal so far in the future is that time is your biggest ally. Establish the virtuous habit of setting aside a small amount from each paycheck, beginning with your first one. Try forgoing the expensive latte and limit meals at restaurants; just $10 per day set aside over the next 40 years could easily compound to an additional $300,000 toward your retirement. When it comes to investing and saving, time is magic and it's irreplaceable.

If your company has a 401(k) plan, find out today if not sooner how to get started, even with just a small amount. Get used to having a few bucks withheld before you ever see it, and gleefully accept your employer's matching contribution if it offers one. If your firm doesn't have a plan, open an IRA account and set up a payroll deduction or automatic bank transfer each payday to put saving on autopilot.

Learn to hate fees. Always be on the alert for additional charges incurred in financial transactions and make every effort to avoid or minimize them. These extra charges may seem insignificant on their own, but the cumulative impact can melt a hole in your pocket. A recent survey reported in USA Today indicates that millennials in particular utilize high-cost services like payday lending, fee-based prepaid cards, and pawn shops in exchange for convenience or because they lack understanding of the outsized expenses. Learn to ask questions and know all the costs, and seek out lower-fee alternatives like community banks or credit unions.

A graduating college senior today has an average remaining life expectancy of sixty or more years. Simple arithmetic dictates that future social welfare benefits like Social Security will be less generous than for current recipients. Establishing lifelong habits of thrift and investment today can help ensure the financial resources to enjoy those extra years in style.

Christopher A. Hopkins, CFA, is a vice president and portfolio manager for Barnett & Co.