Financial to-do list: College graduates
College graduations across the country this year will once again result in millions more entering the workforce, beginning grad school or pursuing other endeavors. For those entering the professional world, receiving a full-time paycheck after years of having full-time student status may seem like you finally have some money to spend. However, entering the real world comes with a lot of expenses, including student loan debt to now accompany your rent, furniture, utilities and other miscellaneous bills and expenses. While it may seem manageable, it’s best to come up with a game plan to tackle these expenses to avoid becoming overwhelmed.
Here are 5 quick tips to help smooth your post-college transition and keep your bank account happy:
Make a budget
The inevitable starting point to taking control of your financial life is to make and stick to a budget. Start by identifying your goals, coupled with your recurring monthly expenses such as rent, utilities and groceries—how much would you like to save each month? How often do you enjoy going out to eat? You can start allocating your money from there. Go through your bank statement and figure out what you can cut back on. If you’re paying $10 a month for a video streaming service that you haven’t watched in 3 months, you may want to consider cutting that from your budget. If you have several automated withdrawals, make sure you know exactly when that money will be withdrawn from your account. The more specific you are about your budget, the more likely you will be to stick with it. Don’t forget to allocate a certain amount of money towards recreational spending such as shopping, entertainment, going out to eat, etc.!
Once you establish in your budget exactly how much you are able to save each month, building up your savings account should become relatively simple (in theory). A general rule of thumb is to create an emergency savings account with enough funds to cover 3 months worth of expenses. This would be able to cover unexpected large costs, such as a sudden lay off, an unexpected medical bill and so on. One of the best ways to save is to establish automated payments to your savings accounts. These can be as small or as large as you want them to be. Some banks even offer special savings plans—for example, a plan that automatically transfers $1 from your checking account to a savings account each time a transaction is made.
Establish credit responsibly
Building up good credit is important in everything from signing a lease on an apartment to getting a job to purchasing a car. Your credit score is the gateway to your financial life—bad credit can result in paying higher interest rates and can suggest you may be a risky tenant, employee or buyer. If you don’t already have a credit card, an easy way to build credit is to open a credit card and use it responsibly. Be sure to check the interest rate when opening up a new credit card. While the national average interest rate for credit cards is around 15%, staying around 8% or under could help you avoid paying extraordinarily high fees. While you should obviously not charge anything and everything, the most important item to remember is to pay off your balance each month in full. Failing to pay your credit card balance each month could result in paying higher interest charges on your card and could end up damaging your credit.
Don’t put off getting insured
You may be tempted to put off getting insured—however in order to protect both you and what you have, purchasing the appropriate coverage for yourself is crucial. If you are unable to remain under your parents’ policy, consider purchasing health insurance either through your employer (if available) or by comparing rates for individual coverage. Medical treatment rarely comes cheap and choosing to skip health insurance could have costly implications down the road. Other essential forms of insurance include auto and renters insurance—shop the rates for auto insurance to get the lowest rate without compromising on the coverage you receive and if you’re renting, you’ll want renters insurance to cover the cost of your belongings in the case of a fire or burglary. Lastly, start thinking about life insurance and disability insurance. Even though you may be young, life insurance serves to replace your income in the event that you die—even if you have no dependents relying on your income, it could cover the cost of your funeral. Disability insurance is meant to serve as income protection in the event that you become sick or disabled for an extended period of time. Check with your employer to see if either coverage is provided.
Manage student loan debt
If you graduated with student loan debt, you’re joining the millions of other Americans dealing with how to pay off the loans. Student loans often come with a six-month grace period that will allow you to get on your feet. However once that grace period comes to an end, you’ll want to have a plan in place for tackling your loans. Start with paying off the loans with the highest interest rate to avoid paying higher fees later on. If possible, avoid only paying the minimum especially on the higher interest rate loans. While it may seem like the better option now, you might be kicking yourself later on.
Congratulations on the milestone of graduating. As you transition into the professional world, keep these tips in mind to generate good habits that will stick with you for years.