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Managing money a must for recent college grads

Pity the college graduate. After spending four years with his head buried in books (or, more likely, beer cans), he emerges, blinking, into a harsh world where financial savvy means far more than knowledge of Thucydides or "Beowolf."

Meanwhile, he doesn't know how to balance a checkbook.

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It's not a pretty picture. But it's not an uncommon one, according to Frances Smith, vice president of American Financial Services Association, a Washington-based non-profit foundation.

"After people have been living on campus or at home for a number of years, where most of their financial concerns were taken care of by someone else, entering the real world can be a big shock," said Ms. Smith.

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With more and more recent graduates saddled with heavy student loan payments, that sort of ignorance can prove especially dangerous.

"People might be starting out in their new jobs with monthly debts of $200 or $300," Ms. Smith said. "Their take-home pay might barely cover that and the essentials. So they really have to be careful about how they spend their money."

For those who know more about GPAs than gross incomes, here are a few tips to ease the transition into the real world:

* Create a budget. Calculate your basic monthly living expenses and compare them with the amount of money you're bringing in every month. If you come up short, cut back in areas such as entertainment, clothing and long-distance bills.

To help with your budgeting, track your expenses for a period of time, especially if you're confused about where your money is going. Look at budgeting as dieting, Ms. Smith advised. Set spending goals and try to stick to them. If you splurge one day, cut back the next.

That's a course Cindy Sherman follows. Ms. Sherman, 26, earns $20,000 per year as a systems administrator at Milner Fenwick Inc., a Timonium-based firm producing videos on topics such as reducing high blood pressure. Occasionally, she finds that she's spending beyond her means, whether it's on baby-shower gifts or tickets to a comedy show for her family on Mother's Day.

When that happens, Ms. Sherman, a 1990 graduate of the University of Maryland Baltimore County, institutes a "spending freeze." For a month or two, she won't permit herself to use her credit cards.

"I also just try to stay away from stores," said Ms. Sherman, who lives with her parents in Reisterstown.

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* Set aside a certain percentage of your salary every month for savings.

After graduating from Williams College in June 1990 and getting a job soon thereafter as a loan officer for Maryland Home Mortgage Corp., Hassan Murphy decided he wanted to save $14,000 toward law school over the next year. Mr. Murphy put 50 percent of his commissions from the Lutherville-based company into a savings account.

"When the money came in, I treated it as though it were already committed, as though I had a bill to pay," said Mr. Murphy, who lives with his family in Mount Washington.

Although he was often tempted to stray from his plan -- for clothes or a compact disk player -- the system has worked. When Mr. Murphy begins attending law school at Georgetown University this fall, he'll have more than $14,000 at his disposal for living expenses.

For those who lack such willpower, forced saving can be a good option. It involves the automatic withdrawal and transfer of a certain amount from your pay to a savings or investment account. To arrange this, talk to your employer and your financial institution.

* If you're going to live in an apartment, shop carefully for one that fits your budget and living needs. Look for an affordable area that isn't too far from work. Realize that your landlord will usually ask for either a security deposit, typically a month's rent, or for payment upfront for the first and last month of the lease.

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Before signing the lease, review it carefully so that you'll know what the security deposit covers and under what circumstances it will be forfeited.

Calculate your utility bills. Find out what the average monthly payment has been for heat, gas and electricity, as well as charges for "high" months. Some landlords include utilities in the rent, while others meter them separately. You may be required to put down a security deposit for certain utilities.

* Furnish wisely. "Until you get more established, used furniture makes a lot of sense in terms of cost and durability," said Ms. Smith. Garage sales and thrift shops are often good sources of used furniture. You might also check out some of the stores selling cheaper new furniture, such as IKEA.

Zachary Friedman, 24, drew on the help of family and friends when he set up housekeeping in his Baltimore County apartment last September. His stereo once belonged to his sister, his two patio chairs came from an ex-girlfriend, and the two antique end tables in his living room once graced his parents' house in Washington. Moreover, Mr. Friedman, a 1990 graduate of University of Maryland Baltimore County who is now working as a waiter, transported his old bed, dresser and wooden desk from his parents' house to his apartment.

* To cut costs, consider rooming with someone or living at home. Michelle Golden, 23, shares her Pikesville apartment with a roommate -- a situation that considerably reduces her living expenses.

"I could afford to live on my own, but then I wouldn't be able to have any fun," said Ms. Golden, a bank teller who graduated from UMBC two years ago. "I like being able to go out to dinner when I want and not having to worry about whether or not I can afford it."

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* Figure out your transportation costs. There are a lot of hidden costs in driving a car, including insurance, parking, gas and maintenance. Knowing what they'll be beforehand will prevent any rude shocks. If you're planning to take the subway or the bus, include that in your budget.

* Watch out for high telephone bills. Cindy Sherman's boyfriend lives in Columbia, so she has the potential to run up large phone expenses. To combat it, she tries to make her calls during hours when the rates are lower. You might also try sending short notes to keep in touch with someone who lives far away, or keeping a timer near the phone to limit the length of long-distance calls.

* Spruce up your wardrobe -- gradually. Instead of running out to buy a whole new wardrobe, try to start slowly by purchasing a suit or jacket that will coordinate with skirts or pants you already own.

Noel Harris, 26, is expert at keeping clothing costs down.

Ms. Harris, who received a master's degree in teaching from Towson State University this May, finds most of her bargains by shopping in discount clothing stores, rather than department stores.

"I don't believe in paying $40 or $100 for a dress," said Ms. Harris, now seeking a teaching job. "If I have to spend any more than $20 for a dress, that's rare. I went on an interview in a $7 dress the other day, and it was fine."

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* Brown-bag it. Bringing your lunch to work can save a lot of money. So can cooking dinner at night instead of eating at restaurants.

"My girlfriend loves to go out to dinner, but I see it as a waste of money," said Mr. Murphy, the Williams College graduate. "I'd rather go to a baseball game or a bar than out to dinner, and I don't see being able to afford both."

Keeping your kitchen shelves stocked with food may keep you from being tempted to go out to meals.

* Open a checking account.

If you don't already have one, you'll need a checking account once you're out of school. Shop around for the banks that charge the lowest fees. Once you've opened the account, get in the habit of balancing your checkbook as soon as your statements arrive.

If you need to learn how to balance your checkbook, consult a friend, your parents or your bank officer. Your bank may also provide free brochures on the subject. Be careful with your use of cash cards, especially if your bank charges a fee for that usage. And "be sure to mark down your automatic withdrawals so your checkbook will show your current balance," Ms. Smith said. You don't want the embarrassment and high cost of bounced checks.

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* Don't abuse credit. A credit card is probably a practical thing for everyone to own, as long as it's used wisely. Figure out ahead of time what you can afford in payments each month, and stick to that limit. Also, try to resist impulse buying on credit, since those charges can add up.

Michelle Golden attempts not to accrue any balance on her Visa and Mastercard, both of which she's had for about five years.

"When I charge something, I like to pay it off immediately," said Ms. Golden. "The interest rates are so astronomical that it doesn't make sense to do otherwise."

For more information on the subject of personal finance, consult your library. Books such as "Organize Your Personal Finances," by Jean Ross Peterson (1984, Better Way Publications) are good resources. You can send away for a government-produced pamphlet, "Getting Started: Establishing Your Financial Identity," by writing to the Consumer Information Center, P.O. Box 100, Pueblo, Colo., 81002.

Alyssa Gabbay is a free-lance writer who often covers business issues for The Sun.


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