As you hang up your cap and gown and prepare for life after college, here are eight personal finance strategies that can help you get your post-college life off to a good start:
1. Learn How To Create and Live on a Budget
The first step to handling your money is understanding where it is coming and where it is going. Establishing and sticking to a monthly budget is essential for long-term financial health. This is the foundation for everything else you do in personal financial management. Until you have some knowledge of and control over how much money you’re earning and spending, you won’t be able to implement any other personal finance strategies. One way to kick-start your budget is to use a free app like Mint to automatically track your spending on the go.
2. Make Saving a Top Financial Priority
Oftentimes new college graduates place saving at the bottom of their priority list, since their income is probably relatively low. As you embark on your professional career, making saving a top priority instead, will instill strong financial habits that can last a lifetime.
Regardless of how small your paycheck is, you can probably afford to save something. The amount isn’t as important at this stage of your life as building the discipline of saving. One strategy is to save a percentage of your income — this way, your savings will automatically increase as your income grows.
3. Establish an Emergency Fund.
It might not be pleasant to think about, but emergency funds are crucial protection from life’s unexpected and costly events. Whether your car breaks down, you get injured or lose your job, having this safety net will give you financial peace of mind. The trick here is to reserve this fund only for emergencies.
4. Learn the Basics of Investing.
It is important to realize that saving money and investing money are not the same thing. After you have built up your emergency fund account to a comfortable level, you can start thinking about how you might want to invest some of your excess money in stocks, bonds, or other financial instruments depending on your financial goals.
5. Start Thinking about Retirement.
While retiring might seem like it’s the last thing you need to think about as a new graduate, the reality is that the sooner you start saving for retirement, the more time you have to benefit from compounding returns and tax benefits.
So how do you actually start saving for retirement? If your employer offers an account like a 401(k), make a transfer from each paycheck to it. If the employer offers to match your contributions to a certain amount, aim to contribute at least enough to get the full match — it’s free money!
If you don’t have an employer-sponsored retirement account, open an individual retirement account through an online broker or automated financial advisor. Have the financial advisor help you decide whether a Roth IRA is the most tax-friendly option for you as a new graduate, or whether a Traditional IRA is best (read our prior blog posts explaining these retirement fund options).
6. Get and then Stay Out of Debt – Student Loans and Credit Cards.
Excessive debt could be the biggest detriment to your long-term financial security. So, paying off any debt that you have when you graduate college should be another top financial priority.
If you have any high interest rate debt, such as credit card debt, start with repaying them quickly. Then focus on student loan repayment. Start tackling student loans by answering these questions:
- Are the loans federal, private or a mix of both?
- How much do you owe?
- What are the loan interest rates?
Most student loans have a six-month grace period, meaning payments won’t come due until late fall. But if you can start making payments earlier, you’ll save on interest and establish the habit of paying (Note: most ED-owned federal student loans have no interest or payments due until 9/30/21 due to COVID relief). For federal loans, you’ll make payments to your loan servicer, the company the government hires to handle loan repayment.
Once you’re out of debt, make a commitment to staying out of debt, especially high-interest credit card debt. One way to do this is to pay for all purchases with a debit card or cash. If you do use a credit card, pay the balance in full each month to avoid paying interest charges.
7. Establish and Track Credit.
Your credit score will become one of the most important parts of your financial life – either positively or negatively – going forward. It will affect everything from whether you are approved for a car loan or mortgage (or even an apartment lease) to the interest rate you will pay on these and other types of loans. Some employers even check credit history before offering a candidate a job!
To build and maintain good credit, remember a few basic rules: keep your oldest credit card open, pay your bills on time and avoid maxing out cards (in fact, try not to spend above 20-30% of your credit limit). To avoid late payments, consider scheduling automatic payments, setting calendar reminders before due dates, and downloading an app like Mint, which aggregates all your bills in one place
8. Live Within Your Means.
As you start your professional career, happy hours, lunches out, and expensive exercise classes are fun and tempting when you start receiving your first paychecks, but these daily or weekly luxuries will eat away at your budget fast. To combat this, identify a few classes, restaurants or bars you’re really eager to try, so that when you do treat yourself, you’re doing so mindfully and responsibly.
Bonus Tip: Remember you can always make an appointment with Powercat Financial if you have any financial questions, would like to review your job offer, discuss salary negotiating strategies, develop a post-grad budget plan or review your student loan repayment options. All you have to do is request a free appointment with one of our peer financial counselors at www.k-state.edu/powercatfinancial.
Sarah Meenen
Peer Counselor II
Powercat Financial
www.k-state.edu/powercatfinancial/
Sources:
https://www.thebalance.com/the-best-financial-advice-for-new-college-graduates-1289592
https://www.nerdwallet.com/article/loans/student-loans/money-tips-college-graduates
