An economic survival guide for recent college grads

At Johns Hopkins University in Baltimore, arguably one of best research colleges in the country, professors normally don't have to assume their students are clueless about the subject matter. But Stuart Ritter, who teaches the school's undergraduate personal finance course, has found it's best to start from scratch.

"Before taking the class, most of them didn't know anything [about managing their own finances]," says Mr. Ritter. "It's not that they had misconceptions – they didn't know where to start."

With graduation around the corner, college seniors are heading toward a summer that could be both thrilling and daunting. It'll be a time of first paychecks and new apartments, but also of unexpected expenses and new responsibilities.

When it comes to managing money, where do you start?

While the key lesson is an old one – save! – those first few years in the "real world" are also about adopting money-savvy habits that many students have never needed. And, with Generation Y saddled with more loan debt than ever before, many financial planners warn that the common pitfalls will be less forgiving than in their parent's day.

"People in their 20s are in a unique stage of their lives," says Brian Jones, author of "Getting Started – The Financial Guide for a Younger Generation." "If they plan well now and start saving, their finances will be much easier in the future. But for the most part, this crucial time is wasted."

Since most students' expenses are covered by loans, credit cards, or "the Bank of Mom and Dad," many financial planners agree that graduates need to take their first adult steps carefully.

In 2006, the average total debt among Americans aged 22 to 29 rose to $16,120 – up $1,475 from 2001. In those five years, the average number of late payments increased by one-third, according to an analysis of 3 million financial records by credit reporting company Experian Group and USA Today.

Budgeting monthly expenses is the best way to pay off debts and avoid them in the future, says Emily Wood, a certified financial planner (CFP) for Grimes & Company in Westborough, Mass.

"Plan out what your expenses are and what you need to do to keep to that budget," she says.

At Robert Manning's website, creditcardnation.com, the Rochester Institute of Technology professor has a free budget calculator. The program helps students see where their money is going and where they can cut back, he says.

"You have your needs, your wants, and your desires," Dr. Manning says. "There's public transportation, the used car, or a BMW. If you want to go with your desires in one area, that's fine. You're adults, now. But it means you'll have to save in other areas."

When budgeting, guessing at expenses doesn't help. If you aren't sure how much you spend on food each month, find out.

"Often, people over- or underestimate how much they make and how much they spend," says Ritter, who, on top of teaching, is also a CFP for T. Rowe Price. "I have my students write down and track every purchase they make for a month."

The class found that unexpected costs frequently pop up, throwing off their plans. These surprises weren't catastrophes; they were everyday events – holidays, friends' birthdays, car repairs. These moments won't break the bank, Ritter says. But if you're not prepared, they will suck up savings.

Of course, paper-and-pencil budgeting is not for everyone.

"I don't have time to plan everything out," says Mr. Jones, also a CFP. For him, keeping expenses low is about finding alternatives.

"The biggest money drain out there is Friday and Saturday night," Jones says: eating out, parking, movies. "No one wants their social life to suffer because of their wallet," he says. "One trick I learned is: Always eat at home. You can meet up with your friends later, but save yourself some money and just cook dinner."

Once you've tackled mandatory ex­­penses – rent, insurance, etc. – Ritter says the next target is the credit card bill.

"If you're not paying off your credit card in full every month, it means there's a broader problem with your spending habits," he says. Paying off a purchase over time can add 20 percent to the cost of an item, he explains. "Think: Is it worth paying more than the price tag just to have it now?"

This doesn't mean avoid credit cards – "you need them," Manning says.

Having good credit is not only important for getting your first mortgage; Manning says it also affects who will hire you. "To many employers, credit scores are now more important than your grade point average," he says. "Employers are looking at them to make sure you know how to handle money."

Manning urges every twenty-something to get a credit card, buy one or two small items a month, and immediately pay it off. "That's all it takes to establish a good early credit score," he says.

Student loans can be handled differently, Ritter says. While you should always pay your monthly minimum, he advises graduates not to fret about paying them off quickly. Because student loans have relatively low interest rates – currently 6.8 percent for Stafford federal loans – Ritter argues that it's better in the long run to put any extra money into a retirement account. "A good retirement account can earn 8 or 10 percent," he says. "Put your extra money into one of those programs, and, by the time you retire, you'll wind up with more money."

Although the three basic retirement vehicles – 401(k), 403(b), and IRA – cannot guarantee better interest rates down the road, they are one of the most popular and profitable ways to save money – especially if you start young.

"I cannot say enough about the power of starting a retirement account early," says Ms. Wood. () She urges joining an em­ployer's 401(k) quickly.

Money you put in a 401(k) goes in before taxes, and many companies will match a contribution, up to a certain amount. "In many cases, it's like getting a 3 percent raise for doing nothing," she says. "It's free money."

Generation Y will need that extra money far more than their parents, many financial planners expect. As pension plans disappear and Social Security erodes, those entering the workforce now "shouldn't count on getting anything that you haven't saved on your own," says Ritter.

Graduates should aim to save 10 percent of each paycheck for retirement, he says, and another 10 percent for closer goals (car, house, vacation). If 20 percent is too much, do 15, or 10. "But whatever you do," Ritter says, "don't say you'll start saving 'later' or 'when I'm older.' The worst thing you could do is not save at all."