Useful Financial Tips for College Graduates
While many graduates are excited to embark on their journey after college, some may be anxious about the financial difference between life as a student and a graduate. Although it’s a big milestone to complete college, it’s important to shift focus onto the next milestone as soon as possible: financial stability. Believe it or not, college expenses can be less stressful compared to expenses after graduating. Whether you have a full-time or part-time job, the expenses after graduation will likely increase dramatically, and it’s important to find productive ways to manage your finances.
There are a number of factors to consider when entering into the real world after being a student. Not only do you have to worry about finding a job to sustain yourself, but you also might need to find a place to stay and begin your new lifestyle — which can be expensive. However, it is vital to stay focused and maintain a positive outlook when establishing your plan, because no matter what happens, there is always a way to overcome such major financial challenges. In the meantime, here are some useful financial tips to consider as you enter the real world after college.
Create a budget
Some college graduates make the mistake of not investing time into budgeting, and then struggle to find ways to improve financially. However, creating a budget is an essential tool to better your financial health. It helps you monitor your income, expenses, and debt when you aren’t sure where all your money is going. Your priorities will change when creating a budget after college, which is why you should consider finding the right budget percentage that will help you reach your goals. Some steps to consider when creating a budgeting plan include:
- Outline your financial goals: Whether your goal is to pay off your student loans or start saving for your future, outlining your goals will help keep you on track with your finances and help you stay motivated. Then, connect your short-term and long-term goals with the budget percentage (e.g. 50/30/20 rule) you chose.
- Determine your monthly income: Whether it is a paid internship or a full-time job, you will need to calculate your earnings after tax deductions and insurance. This step is helpful when determining how much money you’ll bring home at the end of the day, and how much will be left over after subtracting recurring expenses.
- Calculate your monthly expenses: Go through your bank statements to figure out what your expenses are. Start by defining your essential expenses and your optional expenses. This will help you allocate for your monthly bills and determine what optional expenses to avoid if your goal is to pay off debt and save.
- Establish a plan to pay off debt: After you budget for your needs and wants, plan how much you will put toward your debt payoff. The percentage that will go into your debt is dependent on how much is left over after your essential expenses and how much debt you have.
Creating a budget is the foundation of every financial decision you make in the future. If you notice that you are spending more than you make, then it’s time to review your expenses and cut down on your spending, especially if you have outstanding debt. Additionally, if you feel like you need more income, it may be wise to get a part-time or second job.
Build Your Savings
According to research by College Finance, about 40 percent of college students and Millennials are saving for an emergency fund. As graduates get into their adulting stage, they realize that they should have saved money while being a student to prepare for rainy days. In some cases, the reason why some don’t save is that their income was low in college. However, making saving a high priority will help you develop healthy financial habits that will aid you throughout your adult life. That said, you can build your savings over time using some of these tips:
- If you haven’t already, create a savings account. Research the best option for you that will also earn interest back.
- Determine how much you can put into your savings based on your budget. Even if it’s 20 dollars from each paycheck. A little goes a long way, especially in the case of an emergency.
- Consider opening an emergency fund that includes at least three to six months’ worth of living expenses. This will prepare you for any unexpected emergencies like a hospital bill, sudden unemployment, and car or home repairs.
- Avoid overspending. Living on less money might not be ideal, but having savings to fall back on will be a relief. This doesn’t mean you shouldn’t have fun, but be cautious about frequent overspending that may hurt your financial future.
Saving money isn’t an easy thing to do when it’s new to you. It takes time and discipline. Even if the amount you saved doesn’t seem like much, at the end of the day, you’re still boosting that fund. Building savings early is helpful when managing money and investing in the future. Consider implementing a strategy of how you want to save your money to help you stay on track.
Improve Your Credit
The term “good credit score” has probably been mentioned a lot in your college life, but some people aren’t sure what a good credit score actually is. Based on Forbes Advisor, a credit score between 670 and 739 is generally considered “good.” Your credit score will be an essential part of your financial journey. Whether you’re currently living at home or renting, you need to know what credit score qualifies you to buy a house or lease an apartment, if moving out on your own is part of your plan after college. Once you determine your eligibility, it is key to start building and maintaining good credit health to help you with any of these future investments, such as taking out a car loan or buying your first house. To start, think about ways you can improve your credit by asking yourself these questions.
Question 1: Have you been paying your minimum repayments on time? If you haven’t, this is the easiest way to hurt your credit score. Making sure you’re ahead of your monthly payments is the best way to build your credit.
Question 2: Has your credit report reflected your account balance and history? Checking your credit report is essential to keep up with your outstanding debt, FICO score, utilization of credit, closed accounts, and any installment loans. Monitoring your credit report regularly is useful when evaluating what you can do better.
Question 3: Are you using more credit than you can pay back? If you are maxing out your credit line, this will hurt your credit score since it increases the percentage of your utilization to over 30% depending on your debt. Credit utilization should always stay around 30%.
These questions are helpful to ask when you are trying to increase your credit score and learn what may be hurting your credit. As a young adult, you will come across some credit card debt, so start with paying the outstanding debt first, as your interest will increase the longer you leave it unpaid. The more you start investing your time into understanding credit scores, the more you will find ways to improve your credit at a young age.
Improving your finances doesn’t have to be stressful. It’s all about finding the best way for you to start and learn how to improve from your mistakes. The beginning of life after college will be a lot of trial and error when it comes to money management. However, learning basic personal finance skills from the tips provided early into adulthood will benefit your financial wellness throughout your lifetime.