Congratulations! You’ve graduated from college and you’re striking out on your own. Making that transition can be challenging and overwhelming, especially when you’re learning how to handle your finances. To stay money smart after college, help avoid pitfalls by using these tips.
Most people do not budget and that number is even lower for new college grads. To help ensure you don’t overspend, it’s a good idea to make a budget. Creating a budget can act as a roadmap, revealing where your money is being spent. You can use it to identify wasteful spending and then take corrective action. It will also show you the areas where spending can be reduced or reallocated to pay down debt, like school loans. Once you get into the regular habit of budgeting, it can become easier to maintain.
The quicker you can pay off your school loans and become debt-free, the better. As soon as you graduate and enter the real world, you typically have a grace period to start paying off your student loans. Start by finding out the details of your loans, specifically how much you borrowed, what your interest rates are, the first payment date, whether you have a grace period or not, and how many years your loan term runs. Use a student loan calculator to estimate your monthly payments and see how much interest you’ll be charged. Make sure you work the payments into your budget.
You can set up automatic payments through your online checking account for monthly loans, credit cards, car costs, and even rent. It’s easy, you’ll avoid late payments, and paying on time will keep your credit score healthy.
You’re fresh out of school and probably aren’t thinking a lot about saving money for the future. But you should. Putting money away can help you make larger purchases down the road, such as a house. Start by opening a savings account and putting as little as $20 a month into it. Once you understand your finances better and are managing your budget, you can increase that amount over time. You’ll be surprised how quickly it adds up.
It’s perfectly understandable if retirement is the last thing on your mind. After all, it’s a long way off. However, if you start saving and investing now when you do retire in 40+ years, you’ll likely have a nice nest egg to do the things you want once you leave the workforce. If your employer offers a 401(k), be sure to take advantage of it as soon as possible, especially if they match a portion of your retirement contribution.
Most new grads won’t think about saving money for a potential crisis. But, if we’ve learned anything from the Covid-19 pandemic, it’s that an emergency can occur at any time. Even if another global health scare doesn’t bombard the world any time soon, you may get laid off or fired from your job. You could get injured. You should be prepared for these possibilities and more. The earlier you start putting some money away for emergencies, the more money you’ll have in case one comes up. Your base goal should be to save three to six months of living expenses. If you can save more than that, do it.
To ensure your financial future, it’s important to be realistic about your lifestyle and what you can afford, especially right after college. If you’re spending more money than what you bring home in net pay each month, it can quickly become a problem. You’ll go into debt and all your finances will suffer.
Your credit score is very important because it’s used by lenders to see if you can manage your money. A good score will help you secure financing for big purchases, like a car. If you’re looking to rent an apartment, your score tells your potential landlord if you’ll be able to make payments every month. When you’re fresh out of college, you may not have much credit built up, but you can ensure your score stays high by using a credit card for your bills and paying off the balance every month.