College graduation brings great change for many young adults. It’s the end of an era of homework and classes and leads to the next step in building a career. And for many it also means a large amount of debt, as they now need to start making payments on college loans.
If you’re like most recent college graduates, there’s still a lot to learn about personal finances that probably wasn’t covered in class. These simple tips can help college graduates better manage their money and expenses, so they can get their post college lives off to a good start.
1. Establish a Budget
U.S. News and Money reports that college graduates have a tendency to overspend in order to increase their standard of living after landing their first full-time job. While that paycheck might look big, it’s wise to continue living on a student budget. Budgets can boost savings and keep spending down.
A great place to begin is figuring out exactly how much income you’ll have left at the end of the month after factoring in necessary expenses like food, rent, transportation, debt payments and bills. There are lots of ways to cut down on monthly expenses, like buying generic brands instead of name brands, shopping around for the best car insurance rate and debt consolidation. These tactics can all contribute to minimizing monthly expenses.
Another good budgeting strategy is the 50-30-20 rule. This breaks down monthly earnings into three chunks: 50 percent goes towards needs like bills and food; 30 percent is set aside for wants like dining out, entertainment and shopping; and the final 20 percent is put into savings and used to pay down debt.
2. Build Credit
What does it mean to have good credit? Credit scores are based on accumulated debt and history of successful and consistent debt repayment. This score determines your ability to get a loan, rent or buy property or finance a car. Potential employers can even access credit scores and may take them into account during their hiring process. In short, good credit is important.
Nerdwallet recently published an article detailing some great suggestions for individuals looking to build credit from scratch. Here are a few highlights:
- Get a secured credit card. This is a card backed up by a cash deposit made at sign up. It works like a regular credit card and can help build credit. Establish a good track record, and you can qualify for an unsecured card with no cash deposit.
- Credit-builder loans exist for the sole purpose of building credit. This is like a forced savings program where the borrowed money is held by the lender until the loan is repaid.
- Become an authorized user on someone else’s card. This gives you the opportunity to build credit without being legally obligated to pay it off. Of course, make sure to pay what’s owed to the card holder.
Lastly, when it comes to already accumulated debt like student loans, pay them off as soon as possible. A good rule of thumb is to pay more money toward debts with higher interest rates first and pay the minimum amount on lower interest rate accounts. Always pay more than the minimum when you can – even an extra $20 a month will save on interest and shorten the term of repayment.
It might seem ridiculous to begin thinking about retirement and future expenses like homeownership or saving to start a family right after graduation, but the earlier you start saving, the better. While a savings account is a good place to begin, smart investments can really maximize your savings.
Some employers offer a 401(k), and if they do, take them up on it. This is a fixed amount taken from each paycheck for retirement. Some employers will even match what’s put into the account. This is free money…and who wants to turn down free money? Another great retirement option is a Roth IRA, a personal retirement fund that builds over time. Roth IRAs are tax-free, so you won’t pay taxes on any money you earn in this account when you begin making withdrawals…after you turn 59 ½ that is.
Heading into the post-college world with financial knowledge and confidence will set you up for success. A little smart spending and careful planning can go a long way and could ultimately end up saving you a lot of money.