Financial steps to take the year you graduateMonday 10 May 2021 | Reading Time: 5 minutes
Congratulations, you’re about to graduate college! Now that you’re entering the real world it’s time to start thinking about your finances after school. Managing your finances is an important part of being on your own and the sooner you start, the better off you’ll be. Here are some money moves you should make before you leave school.
Open a bank account if you haven’t already
In college, you probably relied on your parents’ financial support, but now that you’re on your own you’ll need your bank accounts. Make sure to consider setting up a checking account and a savings account in your name before you finish school. a checking account can be useful to deposit your future paychecks and other earnings. You may also use it to pay bills like your monthly rent. Look for:
A traditional savings account that earns interest – Starting a basic savings account is a good way to save for your financial goals. You can get a traditional savings account, which generally allows you to earn interest on your money. It should be easy to open a regular savings account at a bank, credit union, or even online. Most banks and credit unions will only require a low minimum deposit.
A checking account with minimal costs – Many financial institutions offer free checking accounts. If your bank has fees, they may wave those costs if you set up direct deposit for your paycheck. Be sure to find out the details and conditions. Another consideration is the overdraft policy. If you end up accidentally spending more than you have, it’s nice to have a lenient policy that may forgive an overdrawn account once or twice. You may want to also link your savings account to your checking to prevent overdrafts.
Make a budget
Hopefully, you created a basic budget as a student and have some familiarity with using one. Making a budget and sticking to it is one of the important financial moves you can make to manage your money, especially if you strike out on your own for the first time. Once you leave school behind your expenses may be greater and more involved. To stay on top of what you’re earning and spending you’ll need to revise your existing budget or create a new one. First, determine what your monthly income will be. Even if you haven’t locked down a job yet, you can ballpark what your salary might be based on job applications you can find on job sites. Second, create a list of expenses by gathering all of your monthly bills. This should be as detailed as possible and include:
- Car payment
- Car Insurance
- Gas (Car)
- Credit Card Payments
- Student Loans
- Cell Phone
- Gas (Home)
- Life Insurance
- Retirement savings
- Emergency savings
- Pet Care
Once you have all of your income and expenses calculated you can create your monthly budget. Subtract your total expenses from your total income each month. Your income minus your expenses should equal zero. To help get a budget together, try searching online for a free budget template that you can match to your lifestyle.
Remember to update your budget
An important part of budgeting is looking over your finances annually and reflecting on how your expenses compared to the year before, which can help you to establish a baseline for your finances. If anything changed in your life that could affect your finances, be sure to adjust your budget accordingly.
You’ll need to have credit to qualify for financial life essentials such as renting an apartment, buying a car, or taking out a loan. How long you’ve had credit and how you use it are important components of how credit bureaus calculate your score. The higher your score, the easier it will be for you to qualify for the items you need or want. It may be good idea to get a credit card in your name before you graduate and start building your credit, as well as a positive score. To establish good credit you need to pay your monthly payment on time, keep your balance low, and avoid debt.
If you can’t get a credit card on your own, you may be able to get one with your parents as cosigners. You could also become an authorized user on your parents’ credit card. The important thing is to build a credit history.
Pay down your student loans
It’s a good idea to come up with a plan for paying your student loan debt before you graduate. Write down how many student loans you have, how much you owe, and the interest rates. Most federal student loans go on deferment automatically for six months after you graduate, and many lenders also provide a grace period to give you time to find a job and get your financial footing. Here are three tips to help you pay off your loans:
- Try and pay more than the minimum each month. The more you pay toward your student loans, the less interest you’ll end up owing. Typically there is no penalty for paying your loan debt early or paying more than the minimum amount.
- Make monthly payments to pay off the capitalized interest. Unless your loans are subsidized by the federal government, interest will accrue while you’re in college, as well as during your grace period. The interest capitalizes when that six-month period runs out. Once it does, your balance will grow and you’ll pay interest on that inflated amount. Use that grace period to make monthly interest payments while it’s accruing. You can also consider making a lump-sum interest payment before the six months is up.
- Refinance your loans if you get a steady job and you've established good credit. Refinancing can help consolidate your loans into one payment at a lower interest rate. You'll be able to choose a loan term. Look to select one that’s less than your current term to help pay off your debt faster.