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Young, free ... and broke? Money tips for college grads

If you are among the estimated 2.8 million recent college graduates who find themselves thrust into the world of adulthood, you've probably discovered that grown-up stuff, such as budgeting and paying bills on time, is the worst.

Many longtime adults agree with you (really, we do). But your elders who focused on personal finance when they were young will tell you they're glad they did. And those who didn't probably wish they had.

Millennials
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"These things become habit, and you will end up having assets that you have to manage, and that's where most people want to be," said Jon Yankee, a certified financial planner and CEO/partner at FJY Financial. "When you get to that point, it usually means you are living the lifestyle you want to live."

According to financial advisors, here are the things that can help put you on the right path.

Credit

Establishing credit is one of the most important things you can do. But make sure you do it responsibly.

Your credit profile matters because, going forward, it will affect your ability to secure loans for major purchases. For most people, this typically is first a car and, later, a house. The higher your credit score — which can range from 300 to 850 — the better the loan terms you will receive.

Additionally, your credit score matters because some states allow prospective employers to check your credit report as part of their hiring process.

The easiest way to establish credit is to get a credit card. "We advise clients to get a credit card and then pay off the balance every month," Yankee said. "The important thing is to not carry revolving debt."

If you fail to pay off your balance monthly, before you know it, your bill might show a balance of several thousand dollars.

And do not think it won't happen. Among households with credit card debt, the average outstanding balance is $16,140, according to personal finance website NerdWallet. And the national average for credit card interest rates is around 15 percent.

Thanks to the interest you will pay if you carry a balance, the math involved is ugly. Racking up a few thousand in debt and then paying only the monthly minimum can take years to pay off.

Having a low limit on your card can help prevent debt from spiraling out of control, but even then it's important to pay off your balance. Credit bureaus use your balance-to-limit ratio as a contributing factor in determining your credit score.

Student loans

Student loans are typically a young adult's biggest source of debt, and its importance in credit reports can't be understated. If you fall behind on payments or default entirely, the credit bureaus are right there tracking it.

NerdWallet data shows that the average outstanding balance on student loans is $31,946. In the aggregate, Americans owe $1.19 trillion in student loans. That's more than the $890.9 billion owed on credit cards.

"College has become so expensive," said Chris Howard, a CFP with Community Financial Advisors. "For kids who have student loans, it might be the biggest debt they will ever have next to a house."

And, he pointed out, student loans rarely go away. The government has the power to try collecting on federal loans by several means, including garnishing your wages and keeping your tax refund. Private student-loan lenders can sue you for the balance. If you are struggling, contact your lender to find out your options.

Budgeting

Of course, managing debt — whether from a student loan or credit card — involves creating a budget.

"If you are in your 20s and you don't have a budget, you basically spend what comes in," Yankee said. "And then 10 years pass and you realized you haven't saved anything."

The budgeting process starts — and continues — by looking at how you spend the money you earn.

David Jackson, a CFP and financial advisor with Waddell & Reed, typically recommends that his clients use Mint.com or a similar online tool to track their expenses. Mint.com, for instance, breaks down expenses by category in a visual way using a pie chart.

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"Seeing where your money is going helps to reinforce the message that budgeting matters," Jackson said. "You can see if you're overspending in a category."

Advisors say it's critical to distinguish between nondiscretionary spending (e.g., rent, utilities) and discretionary spending (e.g., entertainment, vacations).

"You have to determine your priorities," said FJY Financial's Yankee. "Is it going out every weekend … and spending $100? Or maybe you just spend $50 on a weekend and put the other $50 into savings."

The critical result of budgeting is it will help you live within your means. "Not having a budget is a recipe for disaster," said Howard at Community Financial Advisors.

Savings

Once you create a budget, you'll know how much of your income you can direct toward savings.

There are two types of savings: short-term (under 10 years) and long-term (anything beyond that).

Most financial advisors recommend creating an emergency fund equal to at least three months' worth of income. This is a short-term savings strategy that comes into play if you lose your job or face another unexpected situation that results in the loss of income.

Advisors also stress the importance of saving for retirement. While it's hard to focus on the end of your career when you're just getting started, the early years are the most important time to save.

"I think the mistake lots of young adults make is they avoid the most aggressive things they can invest in." -David Jackson, financial advisor at Waddell & Reed

In this case, the math is beautiful. Thanks to the magic of compounding interest — which essentially means your investments earn interest and then that interest earns interest and so on — the earlier you start to save for retirement, the better off you'll be decades from now.

But it means you are willing to take some investing risk. That means directing your retirement dollars toward stocks instead of cash and bonds.

"I think the mistake lots of young adults make is they avoid the most aggressive things they can invest in," said Jackson at Waddell & Reed. "They tend to be conservative because they don't want to lose money, but they aren't thinking about the long-term."

Other money issues

There are types of insurance that are relatively inexpensive but can protect you from derailing all of your budgeting and savings plans. Long-term insurance is one of them, and many employers offer a policy at an affordable rate.

According to the Council for Disability Awareness, about 1 in 4 of today's 20-year-olds will become disabled before retirement. And the average absence from work is 34.6 months.

If you can't work due to injury or serious illness, a long-term disability policy typically provides you with a portion of your salary — anywhere from 50 percent to 80 percent — up to certain limits.

Additionally, an umbrella liability policy should be explored. In simple terms, this kind of policy covers you if there is an accidental death involving your car or home and you are sued.

"There are all kinds of things that young people don't think about, because they think they are invincible," said Yankee at FJY Financial. "But it's all about priorities."

— By Sarah O'Brien, special to CNBC.com