You’ve done it! You’ve received your degree and are officially ready to enter the real world with a new wave of opportunities and responsibilities headed your way. As you begin your post-graduate life, you may soon realize you have several questions related to handling your finances. In this article, I answer some of the most common questions, and I outline key tips you can implement to help you make the most of this exciting new chapter.
Create a budget
Creating a budget is an important tool to get your finances in order and keep yourself accountable. The 50/30/20 approach can be a great starting point. This simple rule allocates your money into three separate categories:
- Essential expenses account for 50% of your income. This includes rent, basic groceries, transportation, and other fixed costs.
- Wants account for 30% of your income. This may include expenses such as planning a trip, dining out, or subscriptions to streaming services.
- Savings and debt repayments account for 20% of your income. This may include building an emergency fund, growing your retirement savings, or paying down credit card debt or student loans.
Once you get comfortable with this model and get a better understanding of where your money is going, you will be able to make realistic adjustments based on your income and the cost of your necessities. You’ll also start to notice areas you could lower certain expenses and save more. These are all things you will learn with time and practice.
Pay down student debt
Fortunately, budgeting will give you a head start in prioritizing your student loan payments and other debt. It will be very important that you stay on top of making your monthly payments. In fact, pay more than the minimum payment if you can. This can help you lower the principal of your balance and pay off your student loans faster. You may also take advantage of our financial calculators if you are curious to know how much time you could save by making a larger payment.
Read this article to learn more strategies for paying off student loans.
Open a credit card and start building credit
If you are a recent graduate with no credit history, you might want to consider opening a credit builder credit card or another type of introductory card to get started. You’ll need to use the card and pay off your balances on time and in full for a period of time to establish good credit. This could be a great opportunity to understand credit and all its factors. In some circumstances, credit scores and/or credit history could be required to rent/buy a home, obtain utility services or enter other contracts. Read this article to learn more about opening your first credit card.
Building a strong credit history will then allow you consolidate your debt. Refinancing your loans is one of the best ways to pay off student loans faster. The goal of refinancing is to decrease interest rates, meaning more of your payments go toward paying down the principal of your student loans. Learn more about consolidating debt here.
Always pay your bills on time
As you begin your journey to reach financial independence, it is crucial that you keep track of expenses and make all payments – including credit card balances, student loan payments, rent and other payments – on time. Late payments often involve hefty fees and will make negative impacts to your credit score. Stay organized and consider setting up automatic payments and calendar reminders before payment due dates.
Establish a retirement plan
“How soon do I need to start saving for retirement and how do I do it?” is another common question I receive from recent graduates. While it may feel like retirement is a long way away, the sooner you start saving for retirement, the more time your money has to grow and the better off you will be in the future.
If you are beginning your first job right out of college, consult with your employer’s human resources or employee benefits department to see if a retirement savings plan such as a 401(k)/Roth 401(k) is offered. Ask whether you could receive an employer match on your contributions and be sure to contribute at least the minimum percentage or dollar amount needed to qualify for the match. Like with student loan payments, contribute more than the minimum amount if you are able.
If your job does not offer a formal retirement savings plan, establishing an IRA or Roth IRA is another great savings and investment option. Your budget will help you figure out what you are able to contribute to your investment each month. You don’t have to wait until your debt is paid to begin investing. Even a small amount now will make a big difference later.
Emergency savings fund
While it is never pleasant to think about all the things that could go wrong, it is important to be prepared if an unexpected costly event occurs. Whether it is an injury, a broken down car, or losing your job, having an emergency fund will give you a leg up in these situations.
Educate yourself on employer-sponsored benefits
Research the benefits available to you through your employer. For example, if you work for a financial institution, your employer might offer discounts on financial products. Many employers also offer benefits such as discounts on phone bills and wellness activities. Consult with your employer’s human resources or employee benefits department and go over the details of your benefits package to make sure you are taking advantage of what your company offers.
Seek out sound financial advice
In today’s world, there is a lot of financial information circulating on the internet and social media platforms. When you are looking for advice online or on social media, pay attention to its credibility. There is a big difference between advice given by a Certified Financial Planner® and an influencer on TikTok.
Also, be aware of false representations of certain lifestyles on social media. With endless content from influencers living luxurious lifestyles, it’s easy to feel like you are not in a good financial spot yourself. Consume with caution and remember what you’re seeing is not always realistic. The road to financial happiness involves paying attention to yourself and improving your own lifestyle.
As you enter this new chapter in your life, keep in mind that the financial decisions you make today can either pave the road for financial success or create roadblocks down the road. Keep these tips in mind to get started on the right track today!