What college graduates need to know about money

Three friends -- Jackie Smith, Catie Overfelt and Anna Dalager -- are free of credit card debt and good with money. And they'd like to keep it that way, which is why the trio of graduating seniors from St. Olaf College met with me in the midst of finals week to get the skinny about personal finance.

Jackie and Catie, both 22, have jobs awaiting them as pediatric nurses, and 23-year-old Anna is thinking about a career as a certified public accountant once she returns from traveling in Europe. So here's a stab at helping these graduates navigate in the post-college economy.

Savings 101. Putting money aside for the future is not always a top priority or an easy task for recent grads. But Jackie has no debt, she's got a job lined up and she has a list of plenty of things to save for -- a house, car repairs, trips, graduate school to become a nurse practitioner and, of course, retirement.

Minnesota Financial Planning Association board member Mike Shovein's youngest son just graduated from college, too. Mike dispensed this advice: "Begin contributing immediately to a 401(k) offered by your employer ... because of the significant advantage you will have by beginning to invest" when young. Be sure to contribute the maximum employer match.

I'd also start a rainy day savings account for car repairs, plane tickets and other occasional expenses. Consider an online savings account that pays a little more interest than your average bank; everyone from ING to eTrade to Citibank offers such accounts.

Another idea is to open a Roth IRA, an account designed for retirement that is as versatile as they come. Think of it as the little black dress of personal finance. The contributions you make can be taken out any time for any reason, but the earnings must remain in your account until retirement, aside from a handful of exceptions that you can learn more about at www.irahelp.com.

Intro to student loans. Catie and Anna are graduating with five-figure student loan balances. Both want to stay on top of their debts so they aren't paying off four years of education for a lifetime.

Mappingyourfuture.org has a simple calculator that will give you an idea of your monthly loan payments. There are also several loan-related calculators at www.finaid.org.

St. Olaf Financial Aid Director Kathy Ruby shares this rule of thumb: "Take the most generous repayment term that's offered, but then prepay, prepay, prepay." In other words, make larger monthly payments to pay down principal. That way, you can have the flexibility to put less money toward your loans in lean times. Of course, the longer it takes you to repay, the more it costs you in interest. Be sure to ask about how easy it is to switch repayment plans as well.

Ruby also advises grads who have multiple types of loans to more aggressively pay down the loans first that have either the highest interest rates or variable rates.

Despite the recent news that nine of the 10 major lenders offering loan consolidation have left the business, including Wells Fargo and Sallie Mae, consolidation is still available and has its advantages. Besides lumping your loans together into one payment, consolidation typically provides more repayment choices, such as monthly payments that start small and get bigger over time. Students who have variable rate loans to consolidate should wait until after July 1, when Finaid.org publisher Mark Kantrowitz expects the interest rate to drop by 3.5 percentage points.

Simple budgeting. I'm not ready to say that a pen-and-paper budget is a thing of the past. But with nifty online tools that aggregate all of your account data into one place, budgeting is certainly less painful and time consuming than it once was. Sites such as Mint.com track your average spending in categories such as groceries and entertainment, helping you pick a realistic spending goal based on spending patterns. If you're about to go over your budget, it sends a text message or e-mail to you before it's too late. Warnings about bills coming due and low checking account balances are sent out too, so bouncing checks or paying bills late can be avoided altogether. Mint.com is free, as are www.wesabe.com, and www.geezeo.com. Quicken.com has a $2.99 online version that you can try free for 30 days.

Take a look at your own credit report at www.annualcreditreport.com, and make sure there aren't any mistakes. By law, you can get a free peek at your credit reports from each of the three major credit bureaus once per year.

The oft-mentioned credit score is based on your credit report as well. The score has many applications -- from lenders using it to decide what interest rate to offer you for a car or home to landlords using it to judge whether you'll pay the rent on time. Like it or not, your credit score matters. Learn more about how it's calculated and how your financial behavior can hurt or help it, at www.myfico.com and www.whatsmyscore.org.

Crash course on cars. Catie and Anna both figure they'll need new cars in the near future, and Anna wants to know the best way to shop for a car loan. First, check your credit. If it's not stellar, consider a cosigner. Then shop around for loan rates at your local bank or credit union and at your car dealership. Same with insurance. Realize that your insurance premium may be much higher, depending on the car you choose.

Edmunds.com's Young Drivers Guide has information about lowering insurance premiums to tips on getting a parent to buy the vehicle. AWARE (Americans Well-Informed on Automobile Retailing Economics, an education campaign from the car financing industry) also has several resources to get you on the road to car ownership, at www.autofinancing101.org. And on the road to the rest of your life.

Congratulations, graduates.