What I Wish I Had Known About Money as a New Graduate

Congratulations, graduates! This is an exciting time for you and your proud families, as you don your gown and mortarboard to accept your hard-earned diploma. But commencement also means a beginning--for many, it means entering another phase of life that involves working full time, paying off student loans, and beginning to invest.

In that vein we recently asked our readers, what do you wish someone had told you when you were a new graduate? Among the advice shared, the most common recommendations were to set a smart budget (and stick to it), pay off your student debt (and don't take on more debt), and start saving for retirement.

It's all great advice; unfortunately, following it is often easier said than done. Particularly in the early innings of your career, when you're likely earning less relative to what you'll be making later in your working life, it can often feel like there's not enough of your paycheck to go around.

But it may help to think of it in these terms: By paying down debt as soon as you reasonably can and setting aside money in your 401(k), you're paying your (future) self a lot more than you're sacrificing now. Even if you can only afford to contribute a small percentage to a retirement account, tax-deferred compounding (along with a matching contribution from your employer, if offered), means you'll be able to take out far more than you put in.

"Save as much as possible during your working years to have … funds for retirement (some day, decades from now, you will be very glad you did)," said hdw4567.

The following is a summary of the responses. To read the entire thread, and weigh in yourself, click here.

'Get a Job' New grads, put that 1950s Silhouettes song, complete with its sha-na-na-na and yip-yip-yip vocal hooks, on your soundtrack. Many respondents said it's a good idea to prioritize getting a job, which of course will facilitate paying off debt and saving for retirement.

"You can't do much without having an income," writes Chief K.

And when it comes to your job search, the perfect needn't be the enemy of the good, advised a few readers--securing some income is the main goal.

"The highest priority of the new grad is to get a job," said Juris2. "You're not going to pay off your loans or begin a saving-and-investing career if you don't have income. This doesn't have to be a perfect job or a high-paying job. But it should be one that allows you to use your skills and to learn and develop experience and contacts that will serve as the basis of a career."

"Work at something you love doing… And if that's not possible right now make that part of your long term goals," said alan70. "If you have your job, a secure income, it will remove a load of worry."

'Don't defer paying off student debt' Many readers, such as Lucky7, advised paying down student loans. Certainly, this is a worthy goal. As reader SeanDWB advises, "Not paying student debt also gets reflected in your credit score eventually; if you want the best rates in the future, which also saves you money in the long run … make paying students loans part of your monthly budget."

"A $100,000 debt at 5% interest will become $162,889 in 10 years, and can easily become unmanageable," said JohnWills.

"Debt is an albatross," cautions garrettvandrews. "Pay it off."

'Very simple: SAVE!' The most often repeated advice to new grads from our readers (such as Moderation, quoted above) was to save for retirement--as early, and as much, as you can. It's hard to understate the importance of retirement savings--after all, you can't take out a loan for retirement to make up for a shortfall. But, you may be wondering, which should I prioritize, paying off loans or saving for retirement?

As research from Morningstar's HelloWallet division has found, contrary to popular wisdom, it makes most sense to balance loan repayment with retirement savings early in one's career. In fact, it usually doesn't make sense to prioritize student loan debt over saving for retirement, even if the expected rate of return is lower than the interest on the loan. Particularly if the worker is young, saving an extra dollar is more valuable than using it to pay down student loans because it compounds longer in the market. Additionally, interest on student loan debt is tax-privileged for workers with a modified adjusted gross income of less than $80,000.

And further, if your employer offers a match in your retirement plan, that will be decisive in most cases. As HelloWallet has found, even very low expected rates of return coupled with an extraordinarily high interest rate on a loan do not outweigh the benefit of employer matches.

For instance, Madara, a self-described "recent new graduate" outlines an aggressive plan to repay loans, by "[Paying] more than the required minimum each month" and "[Paying] more than once per month (I made one payment once every pay period)." This reader also mentions that saving for retirement should be a priority: "If your employer provides a 401(k) and provides a matching percentage, you should contribute at the minimum the amount they are offering you. It's free money! If you are not employed and are continuing graduate school for example, I would recommend opening a Roth IRA … and try to contribute up to the maximum amount each year or as much as you can afford to sock away."

"Save and invest NOW. Money grows over time. Every dollar you invest at age 25 will do as much good as investing several dollars at age 45," writes dndhatcher.

AFKnoAFW writes: "401(k) 10%-15%. If you never see it, you won't get used to spending it. Should be required--wish it had been for me."

'Stay accustomed to a broke student lifestyle.' Dndhatcher, quoted here, echoed the sentiments of many other respondents who said that starting out with a smart budget early in life is critical. And, of course, it's particularly important for a young person who is trying to pay down student loan balances and sock away some money for retirement.

But while many espoused living frugally, a few also hedged this advice just a little, by recommending that you put aside a reasonable amount of money for indulgences. After all, you're only young once.

"Live within your means, don't overdo debt, save for the rainy days, but always have some 'fun' money available to enjoy the special things in life," said BMWLover.

"Try to save money by driving a used car and brown-bagging lunch," offers cmurdock.

"Get the studio in the modest part of town (better yet, roommates!) and concentrate on paying off your debts. Invest your surplus. Chances are you are at the low-rung of your career, anyways, and at the low-rung of your wealth potential. Those cheats you learned as a student to save money also work well in working life," said SeanDWB.

"If you move to a new city, I would recommend finding roommates instead of renting out a one-bedroom apartment," writes Madara.

And finally, centralvalley offers, "After you've taken care of your financial future, save your money and take the time to travel and do some 'crazy' stuff. … After kids are out of college, mortgage paid off, etc.--65-70 years old--your knees give out and won't let you do the 'crazy' stuff!"