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Grads: Welcome to the real world of money

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Grads: Welcome to the real world of money

If a cap and gown in your immediate future, then congratulations are in order – you’ve worked hard for that college degree!

Before you settle into the routines of seeking and obtaining employment, there's something else you need to do: Get your head around how personal finances work, and set yours up to give you the best possible life. No, your degree doesn't give you a pass on this. Outside the hallowed halls of academe, there's little correlation between smartness and successful money management, nor between dumbness and debilitating debt. You have to set out to discover good practice -- and then follow it.

Your credit score is key

Maybe your first priority should be to find out about credit scores. These are going to determine how much it costs you to borrow money. Maintain a good or excellent score, and companies should offer you great interest rates. End up with a poor or even fair one, and you should pay much more.

A few years ago, personal finance columnist Liz Weston calculated the difference in borrowing costs for two pretty average, identical -- though hypothetical -- people. They got the same amounts and types of credit at the same times, for the same purposes and for the same periods through their lives. Yet the one with fair credit paid over $200,000 more in higher interest rates than the other who had good credit.

That difference makes maintaining a great score very worthwhile. How do you do that? Well, avoid making late payments, or skipping them altogether, or using too much of the available credit on your cards, or opening too many accounts too quickly. All of those actions -- along with obvious things like bankruptcy and foreclosure -- are going to hurt your score.

The good news is that recently, while you've been submerged in books or beer, truly free credit score services have sprung up. These allow you to continually monitor your score, and to take steps to keep it as high as possible.

Use tech to get a grip on your money

There aren't many people anywhere who are more tech-savvy than the Class of 2015. So use your knowledge and skills to set up your personal budget in a spreadsheet, or using a specialized app or online provider.

Yes, this sounds liking the financial equivalent of making your bed and tidying your room. But it can provide hugely bigger benefits. And besides, you're adults now. If you don't already, you'll soon want a tidy room.

Only with a personal budget can you track your outgoings, and so know the changes to make when times get tough -- before you find yourself in real trouble. One can also allow you to set goals, and then measure your progress in achieving them. Mostly, you can include just the big items: your mortgage or rent, utilities, taxes, cable, card payments and so on, along with one monthly entry for your cash spending. But, every once in a while, it's a good idea to see where your cash and card payments are going. You may be shocked by how much you spend on lunches, coffees, happy hours and the like.

Getting into good habits

You're about to discover that the big paycheck you've been dreaming about doesn't stretch as far as you think. You might even find there's not enough money for your month.

When faced with this reality, your natural reaction may be to tell yourself you don't have anything to spare, and that you have to postpone getting into the saving habit until you've more money. Well, guess what? It's never going to be easy to save.

But you need an emergency fund. And you should want resources to invest. You have to bite the bullet, review your budget, and make the hard changes that are going to allow you save.

Dread debt

What you don't want is "bad" debt. Sure, you may, sooner or later, want to buy a home, and borrowing for that is generally "good." And few are going to criticize you for having an auto loan or credit card. In fact, your credit score's likely to be higher if you have a healthy mix of well-managed installment loans and cards.

But, if you're smart, you're going to want to avoid debt that you can't easily repay. That's harder than you'd think, and it's easy to be seduced by a nicer car, sofa or television that's only slightly more expensive than the one you can afford. But honestly -- and if there's a single message to take away from this address, it's this -- your life will be happier and less stressful if you avoid such temptations.

Your degree is your pass into the elite of the most powerful nation on the planet. However, it's no guarantee of a prosperous and happy future. Your challenge in achieving that is only just beginning. But, if you get your personal finances right, you're going to stand a much better chance of fulfilling all your dreams.