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Smart Ways to Use Your Graduation Money

Smart Ways to Use Your Graduation Money

Put your graduation party money to good use and pay off student debt.

By Kathryn Knight Randolph

May 18, 2011

While you were expecting many questions about your future and a delicious hodgepodge of family dishes at your graduation party, you were pleasantly surprised by the $1,300 in cash and checks.

So what do you do with all that money?

Your gut response may be to go on a shopping spree at Forever 21. But those new summer clothes will only bring satisfaction for a few weeks, if that. Instead, do something smart with your money. After all, you’re a smart person – you just graduated, right?!

Splurge

Ok, it’s fine to splurge – a little. You just graduated and deserve to reward yourself. Take 10% of your graduation party money and spend it however you want. If you received $1,300, head to the mall with $130. You can still do plenty of damage at Forever 21 with that much money.

Here are some other ways to spend $130:

Refurbished iPod nano
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Save

Every personal finance expert repeatedly advises the need for a savings account. This account is not for exotic vacations or new computer purchases. Rather, it’s a safety net in case of job loss, medical expenses or any other unexpected circumstance.

Experts recommend that you save up at least three months of living expenses. That’s rent, bills, groceries – anything to maintain your current standard of living.

If you’re just graduating from high school, you may not think this savings advice applies to you, but it does. It’s good to get into a saving habit now. The more disciplined you are, the more you’ll save in your lifetime.

Pay

Chances are if you’re a college graduate, you have graduated with some debt. The most recent data from the Project on Student Debt revealed that college graduates have an average of $24,000 in student loan debt; and according to a 2009 survey conducted by Sallie Mae, the average college student graduates with $4,100 in credit card debt.

If this sounds a lot like you, where should you start?

Financial aid expert, Mark Kantrowitz, suggests that you “should accelerate repayment of the most expensive debt first, which is usually credit card balances and private student loans. The most expensive debt is the debt with the highest interest rate, not necessarily the highest monthly payment.”

Putting your $1,300 toward paying off a credit card can make a pretty significant dent in the amount you owe on that card. Not to mention, it will give you an invigorated approach to paying off the rest of your debt as quick as you can.

Invest

“Invest” may be a scary word, but the best way to overcome your fear is to jump right in. If you have time to pore over data reports for 200 – 300 different stocks to make the most knowledgeable decisions in trading and selling, have at it. But if you don’t, you may want to look into a mutual fund.

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Mutual funds are managed by professional investors, and they can help you spread your money over dozens of stocks. You will have to pay fees, but that type of management is worth it. Just look for a mutual fund that charges a low percentage of fees; it can make quite a difference. MSNBC breaks it down nicely in “Five Tips for Young Investors”:

“Suppose you invested $1,000 today in a fund that earned 8.7 percent once fees were figured in. You’d end up with about $28,000 after 40 years. Now suppose you can find a fund owning the same stocks but charging only 0.2 percent. Your $1,000 will grow to about $43,000.”

Click here for more investing tips from MSNBC.


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