Top 7 Personal Finance Tips For New College Graduates

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So you’ve just graduated – CONGRATS!

Your hard work, perseverance, and determination have finally paid off. We understand, though, that along with the excitement of celebrating this landmark achievement may come some uncertainties about what’s next.

If finances are among those uncertainties, here are 7 tips that may help you budget, save money and plan for your financial future.

Personal Finance Tips For New College Graduates

Personal Finance Tips For New College Graduates

1. Learn how to create and live on a budget.

We’ve listed this as the first strategy because it will provide the foundation for everything else you do from a personal financial management standpoint.

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.

The concept of budgeting is actually very simple — it’s the execution that’s often difficult. The first step is to determine your total monthly income and expenses. Then subtract the latter from the former to see whether you’re currently spending more or less money than you make.

Hopefully, you’re spending less, in which case you can start thinking about how you’ll save and/or invest your excess money (see the next step below).

If you’re spending more than you make, it’s time to take a hard look at your expenses and figure out some areas where you can cut back a little — or maybe a lot. Additionally, you might consider a part-time, second job to boost the income side of the ledger.

2. Start Saving and Investing Now.

When you’re creating your budget, be sure to incorporate savings into your “expenses” equation. This means building up an emergency or “rainy day” fund, saving up for larger future purchases, and yes, contributing to a retirement account.

If you’re lucky enough to have access to an employer retirement plan like a 401(k), use it! If they offer some sort of contribution match, try to maximize it. If not, open an IRA and begin making contributions there. By starting to save for retirement in your twenties, you can greatly impact your future financial security.

3. Reduce your debt load as quickly as possible.

According to a recent Edvisors study, over 70 percent of bachelor’s degree recipients will graduate with loans, and the average 2020 graduate will have more than $35,000 of student loan debt.

While it’s tempting to make the minimum monthly payments, opt for as aggressive a repayment plan as possible. The sooner you pay off those loans, the less interest you pay, and the sooner you will have extra money to put into saving or plan a treat for yourself.

Although they have lower interest rates, take your student loans as seriously as you would any other type of debt. Make your payments on time if you can.

4. Move in with your parents to keep housing costs down.

This presumes they’re cool with the idea and won’t charge you rent. You’ll then be able to devote the money you save on housing to cutting your debt and increasing your savings.

Not having rent payments will let you squirrel away money, start an emergency fund, and have enough cash for the one-month security deposit necessary for your first rental for example.

5. Don’t skip health insurance.

When you’re in your 20s, you think you’ll never get sick or injured. But sudden illnesses do strike and accidents do happen. Insurance will help you pay the medical bills.

Under the Affordable Care Act (also known as Obamacare), you can be insured as a dependent on your parent’s health insurance plan if you’re under 26. The exception: If you can get health insurance through your own job.

If you can’t piggyback onto your parent’s plan and you don’t have a job with health insurance, you might need to buy a short-term policy.

6. Don’t Buy a New Car.

You may be tired of driving a clunker in college or having no car at all, but buying a brand-new car is a costly mistake that could keep you on a tight budget for years. Instead, consider buying a car that’s one to three years old and save a bundle of cash.

You can get a car that looks like a new one for a lot less money, and instead save for another important purchase, like a down payment on a house.

7. Prioritize Your Goals.

Generally speaking, there are four basic goals most people work toward. They save for retirement, an emergency, a major expense (such as a vacation, home, or new car), and they pay down debt. Which goal matters more to you depends on where you are in life.

Usually, when you’ve just graduated, you want to focus on saving for an emergency, saving for retirement, and repaying debts.

Saving for the big things in life, such as a fun vacation or a home, can come later, after you’ve knocked out your debt and have a considerable amount of money tucked away “just in case.”

  • Repay Debt: If you’re dealing with debt, focus on the loans with the highest interest rates first, such as credit card debts. Make the minimum payments on any other debts.
  • Establish an Emergency Fund: Look at your monthly income and multiply it by six. That’s the minimum amount you want to eventually have in your emergency fund. This fund is meant to cover things such as a high medical bill, car trouble, or to tide you over if you lose your job. You don’t have to build the fund in record time – start by contributing what you can afford after necessary expenses, retirement savings, and debt payments.
  • Start Saving for Retirement: Even though retirement is decades away at this point, you want to start saving something now, either in an employer-sponsored plan or an individual retirement account (IRA). Contribute as much as you can every month, even if it’s just $10. It might not seem like much, but thanks to compound interest, $10 a month now can be worth more than $100 a month a decade from now.

No matter what goal you put first, you can shift your priorities with time. For example, you decide to pay down your credit card debt first and put a certain amount of your income toward that debt each month.

Once the cards are paid off, you can focus on a new goal, such as boosting your retirement savings or putting money aside for a down payment on a home.

Speaking with a financial planner is usually the best option if you aren’t sure where to focus when it comes to financial goals. An advisor can show you the ups and downs of focusing on retirement savings versus paying off any debt rapidly.

Final Thoughts

Taking steps toward healthy money management as a college graduate doesn’t have to be complicated—you just have to start off on the right foot.

As you search for jobs, consider a wide variety of options. Building a career takes time, and your dream job may require some entry-level positions or even an internship for you to get started.

Once you’re settled into the workforce and begin receiving paychecks, develop a budget immediately!

Be sure to include important goals like paying off your student loan(s) and saving for retirement.

Finally, create habits like living on less and saving for unexpected expenses to help you better prepare for situations, expected or not, in your future.

Procrastination may have served you well in college, but it won’t help you achieve financial health. Act intentionally. Learning to manage your money well now will help you provide for your family, pursue new experiences, and prepare for whatever lies ahead.

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