To all the new graduates: congratulations! Graduating college is a major accomplishment and no easy feat. You should be proud of the hard work, dedication and perseverance it took to earn your degree.
Now that you’ve turned the tassel, it’s time to apply your drive and focus toward the next chapter ahead. Personal finances are a reality for every adult and the more prepared you are, the better. Here are a few important money tips for any new college grad to live by:
Create a budget
Now that you’re off campus, your monthly expenses could be much different than before. You might be making more money now, but you probably have more bills to pay as well. Overspending and ignoring any existing debt can quickly dig a hole that could take years to get out of. One way to get on the right track is to create a personal budget and stay committed to the spending limits you set for yourself.
To start, find a budgeting style that works for you. There are several budgeting types to choose from that offer a different approach but the same result - wiser spending. The purpose of budgeting is to monitor your spending and become more conscious of where your money is going. Once you nail down a budgeting style and start maintaining positive results month after month, your healthier spending habits can slowly become second nature.
If you have little to no credit established, there’s no need to panic. The good news is you are likely working with a clean slate and have the opportunity to keep your credit unblemished from the start. Whatever path you choose, the key is to pay on time and at least the minimum amount due. Here are some tips and tricks to establishing a positive credit history:
- Get a store credit card - Store cards, such as retail or department store cards, can be a great way to build credit from the ground up. They are traditionally easier to get than a major credit card and you might receive discounts and special offers as a cardholder. Be aware that the credit limit could be lower and interest rates may be higher than non-retail cards. However, if you pay off the fully owed amount each month, you can avoid paying high interest.
- Get a secured credit card - Secured credit cards are also a way to build credit. To open this type of credit card, you must deposit a certain cash amount to eliminate the risk of default for the card issuer. This is a common type of card for people with no credit because the issuers don’t have a credit score to judge your ability to repay your debts.
- Become an authorized user on someone else's account - If you have a family member or friend who is willing to add you as an authorized user on their credit account(s), this could positively affect your credit score.
- Get a cosigner - Cosigners on a loan for people with little or no credit can improve the odds a loan is approved with the help of the cosigner's credit score. When someone cosigns an account with you, it means they jointly agree to repay the debt. Common cosigners include family and close friends with very good to excellent credit. Be cautious cosigning a loan with someone else. A cosigner is equally liable for repayment and non-payment can negatively affect credit scores of both parties just as repayment can positively affect credit scores.
If you paid for tuition, books and rent on your own, saving money was probably very difficult in college. In fact, saving money may not be a realistic goal until you accept your first salaried position.
Once you have enough income to start saving, it is important to start building a solid foundation for your future. Here are some aspects of saving money that all college grads should be aware of:
- Emergency fund - If your car breaks down all of the sudden, do you have $1,500 to cover the repairs? Contribute a small amount of each paycheck to an emergency fund so you’re prepared to cover unexpected expenses. To learn more, check out our blog on how to build an emergency fund.
- Automated savings - Automatically depositing money from your paycheck into your savings could be a simple way to start building your savings. Choose what percentage of your check you want to be transferred and organize the transaction with your payroll provider and bank. After that, you can see your savings balance rise with each pay period.
- 401k plans and IRAs (Individual Retirement Arrangements) - 401k plans, Traditional IRAs and Roth IRAs are three of the most popular retirement savings options but require a good amount of research. If you need help making a decision, it may be a good idea to speak with a financial professional to see what options are best suited for your retirement goals. To learn more about 401k plans in general, visit the retirement plans page of the IRS.
Embrace the next stage in life
College teaches you to effectively manage your time and take responsibility for your actions. As you enter adulthood, this knowledge should help you make important decisions in both life and with your finances. Congratulations again on graduating and best of luck in your future endeavors!