Financial Advice for Recent College Graduates

By Sari R. Updated on 7/27/2017

 

Whether you are one of the lucky graduates starting the summer with your first professional job or are moving home to live with the ‘rents while searching for that perfect job opportunity, it’s important to be realistic about your financial situation. 

Here are some basic tips to get you started on the path to financial success:

Create a budget and stick to it.

  The first step to smart money management is to create a budget.

Check out a budget-friendly website like Mint.com, which allows you to link all of your bank accounts, credit cards, student loans and other assets and set monthly budgets, savings goals and see your actual spending habits in charts and graphs. 

Or, just open up a spreadsheet or grab a pencil and create a budget the old-fashioned way.

Plan for everything; including rent and utilities, groceries, gas, health insurance, student loan and credit card payments, personal expenses and savings. Try to leave yourself a buffer for unplanned expenses or slip-ups.

Remember, you probably aren’t going to be able to live the same lifestyle as some of your friends (goodbye, shopping sprees).

Trouble sticking to your first budget? 

Try paying for everything in cash (it’s more painful to part with real dollars) or rewarding yourself at the end of each month if you meet your financial goals.

Live within your means.

It goes without saying that if you spend more than you earn, you’re going to end up in debt. It’s tempting to announce your arrival to adulthood by purchasing an adult wardrobe, new car and furnishing your apartment with ‘grown-up’ furnishings.

But wait, do you need all of these new things? If your old car is still working and you can make do with non-brand name apparel or thrift store professional clothing and home furnishings, your wallet (and future credit score) will thank you. 

While it may sometimes feel like your friends are taking extravagant vacations or spending on big nights out, don’t let yourself feel pressured to keep up. Sometimes, you have to say ‘no’ to something now to say ‘yes’ to something better in the future.

There are many ways to enjoy a busy social life without putting a major dent in your cash flow. Invite friends over for a get-together and ask everyone to bring a dish to share. Check out a movie or score great deals on entertainment and dining on coupon sites like Groupon. 

Use Meetup.com to find other young people with similar passions –you can use Meetup to try a new sport or join a fitness group, and save on a gym membership. If going out is something you can’t live without, give yourself a strict budget and put your credit cards away before you head out for a night on the town.   

Save for a rainy day.

The general rule is to have three-to-six months of living expenses stashed away for an emergency –such as a job loss or medical crisis. 

But for a recent grad, that amount of money can feel like a fortune. Instead, save at least $1,000 for emergencies to prevent loading up your credit card in case of an unexpected event –like if your car breaks down or you lose your cell phone mid-contract.

If your employer offers direct deposit, you can set up an automatic deposit into your savings account with each paycheck. Otherwise, commit yourself to save at least 10% of each paycheck for your rainy day fund.

Pay off debts.

If you graduated from college debt-free, then congratulations!

If you have student loans to repay or you are carrying a balance on one or more credit cards, it’s time to get serious about making more than the minimum payments.

Credit card companies profit by charging high interest and billing you for a small fraction of what you owe –if you pay only the minimum due, you’re going to pay a whopping amount of interest over time, and you will probably be in repayment for the next 10 or 20 years.
 

And that doesn’t even include the damage your credit score takes from carrying high balances on multiple cards, which can impact your ability to qualify for a mortgage or other type of loan for years to come.

Think about it: When you’re 40 years old, are you going to care about that super cute pair of designer heels or custom black leather sofa you bought as a recent college grad?

Tip: If you graduated from college and didn't have a job lined up right away, consider deferring your student loans or switching to an income-based repayment plan until you find a regular source of income.

Establish credit.

If you are one of the nearly one in three college grads who's never had a credit card, apply for one today. Having an established credit history is an important part of adulthood because it allows you to rent a home or apartment, apply for a mortgage or auto loan and much more.

Build a strong credit score by regularly using your card and paying down the full balance each month.

If you graduated from college with credit card debt or a poor credit history, it’s time to start taking steps to rebuild your credit. Check out ReadyForZero.com, which offers free debt repayment tools that allow you to stay on top of payments and track your progress.

Tip: Carrying a balance on one or more cards? Stash your credit cards somewhere out of the way, where you won’t be tempted to use them while you focus on paying down the existing balances.

Start saving for retirement.

Saving for retirement can seem crazy when you are only in your early 20s. But the reality of compounded interest means that starting to save earlier in life means you will have more money when you retire –much more.

Take advantage of employer-sponsored retirement accounts such as a 401(k) plan. Often, your employer will match your monthly contribution –don’t turn your back on free money!

Put additional savings into a Roth IRA, which offers the added benefit of tax-free withdrawals, with certain restrictions. You will continue to have access to the money you put into the account, an important feature for young people who are unsure if they will need to access the money at some point in the not-so-distant future.

Skeptical that you should start saving for retirement right now? Here’s an example to illustrate the importance of saving for retirement in your 20s:

Meet 25-year-old Ryan and 45-year-old Suzy, both of who are just beginning to save for retirement.

According to Boston College’s Center for Retirement Research, Ryan needs to save 22% of his yearly income to retire at age 62. If he doesn’t mind working until 67, that number decreases to just 12%.

In contrast, Suzy needs to save a nearly-impossible 65% of her yearly income to retire by age 62. To retire at 67, she must save 31% of her income. 

Getting started with a new life after graduation is an exciting time. Make smart financial decisions, and you will find that your future is full of exciting opportunities.