June 2, 2014 at 1:00 am

After graduating, school yourself in finances

Begin working life with disciplined spending to avoid earning a wealth of future woe

Recent college graduates are holding newly minted diplomas that say they mastered college. Now itís time for grads to master their financial life.

Getting off to a good start is like taking the prerequisite courses in high school that made it possible to get through tough college courses. Without them, college tends to be a struggle; with them you struggle less.

Likewise, getting early life finances wrong leaves you struggling later ... often falling deeper behind as time goes on.

So a few rules of thumb will help. You might not like the limits, but if you start adopting them immediately, the controls on your spending will give you more money for the later phases of life.

Spending on student loans

The rule of thumb is that your monthly student loan payments shouldnít exceed 8 percent of your monthly pay from your job.

Unfortunately, no one probably told you that before you took out the loans. College financial aid offices do students a disservice when they wait until just before graduation to tell students what their loan obligations are going to cost them.

But if you are just learning now that your student loan monthly payments are going to be too high for your income, you may have options. The federal government allows graduates to keep their federal student loan payments manageable. If your first job pays so little that you canít afford the loan payments, the government will adjust your payments lower based on a formula you can examine here: finaid.org/calculators/ibr10.phtml. Itís called ďincome-based repayment.Ē

If you use the income limit provision, it doesnít mean you escape the obligation indefinitely. What you donít pay gets tagged on to your loan for later.

If you have no job yet, ask for a deferment or forbearance to delay your loan payments. Learn more at studentaid.ed.gov/repay-loans/deferment-forbearance.

If you donít have a job yet and take one that serves society, you can get relief on your loans. See ecmc.org/details/loanForgiveness.html.

Spending on a car

You are going to need transportation to work, but that doesnít mean you need to drive in the car youíd prefer. The rule of thumb is to use no more than 20 percent of your monthly income for car payments and other car-related expenses like insurance.

Donít solve the issue by extending the loan to four or five years.

This calculator can help gauge what you can afford: edmunds.com/calculators/affordability.html.

Spending on housing

The rule of thumb is not to spend more than 28 percent of your income on housing. You might stretch to 30 percent to buy a home, because in the long run it should appreciate in value and perhaps be an investment for your future. Remember to consider insurance, repairs and property taxes as necessary costs.

Overspending on rent is a major mistake. You will deprive yourself of the money you need to save for a house purchase in the future, and you might not be able to go out with friends, take trips, or go back to school.

Donít charge any more on a credit card than you can pay off each month.

Save every time you get a paycheck. From the start of your working years, devote some of every paycheck to savings, and route it into savings automatically every time you are paid. You should have an emergency fund.

If you own a home, you should be saving about $100 to $150 a month for repairs that inevitably pop up. A rule of thumb: In case you lose your job, have three to six months saved.

Spending on retirement

While it seems far away, it is essential to save, beginning with your first job, in a 401(k) at work or an IRA. If you save 10 percent of your pay throughout life, you should end up with the money you need for your future.

Gail MarksJarvis is a personal finance columnist for the Chicago Tribune.