Financial Tips for Recent Graduates
Have you recently graduated from college? Congratulations on your huge accomplishment!
No doubt you’ve received countless tips for venturing out into “the real world” – but here are some specific pointers we’ve compiled to ensure your financial future. Whether you have a job lined up or not… whether you have a 10-year plan or not… or whether you know what you want to do “when you grow up” or not… read on for some potentially eye-opening advice.
1. Become a Saver
It’s never too early to train yourself to save. This is a lifelong skill – for many, it takes practice not to spend as much as they earn.
- Practice saving. Start with a goal of carving out 20% of your income as savings. If you can’t quite make 20%, save what you can. Keep in mind that ANYTHING is better than nothing – even 1% is still a good start because you can always grow from there. The point is to get yourself into the habit of saving more. Then, on your next birthday or another anniversary, try doubling your savings percentage. When you get a raise, consider putting the entire raise into savings.
- Set up your emergency fund. Be prepared for life’s setbacks by establishing a separate savings account just for unexpected expenses. The rule of thumb is to build up a minimum of three to six months’ worth of living expenses so you can cover that broken leg, that major car repair, or that out-of-work stint. Like your general savings goal, give yourself an initial goal. If you start with $1,000, keep building to that goal – and then try raising it to $5,000 and onward from there.
2. Organize Your Finances
A lack of money management can damage your financial situation. If you’re not keeping track of your finances, you can end up losing sight of your goals. Organizing your income and expenses contributes to your financial success. It’s important to create a system that works for you.
- Create a budget. You can’t get a good picture of your financial situation without building a budget. A budget allows you to check in on your cash flow on a monthly basis, to determine how much you brought in, how much you spent, and how much you saved. There are many budgeting apps available, or you can simply use a spreadsheet.
- Coordinate your debt repayment. It’s almost a given that you have debt. You likely took out student loans, and you might have credit card debt or a car payment. If you have debt, it’s critical that you understand exactly what you owe and when it’s due. Whether or not you pay the scheduled payments on time is one of the most important elements in determining your credit score – and it can cost you big-time if you miss payments. If you have multiple loans, you might consider refinancing or consolidating them to simplify repayment and possibly get a lower interest rate.
3. Look to the Future
Sure, you’re just starting out – you want to focus on The Now. But don’t overlook the importance of your future nest egg. You don’t want to reach the end of your career only to realize you have nothing to show for it.
- Start your retirement account now. If you have an employer that sponsors retirement savings plans, such as a 401(k) or 403(b), jump on that ASAP. The sooner you start building your nest egg, the better. And best of all, most employer-sponsored programs offer a match on the funds. For instance, if you contribute 4% of your pay, your employer might throw in a matching 4% – that’s FREE MONEY! If there’s no 401(k) or 403(b) plan, open an individual retirement account (IRA) through a bank, credit union, or financial services provider.
- Consider disability insurance. Your biggest asset is your ability to earn. Protect your earning potential by looking into disability insurance, which helps you cover your bills in the event you suffer a major health event and can’t work. Consider getting as much coverage as you might need to maintain your lifestyle if you become disabled. Keep in mind that disability insurance policies are not created equal, and they can be complex, so be sure to do your homework to find the right coverage from a reputable insurer.
Remember to ask when you have questions and seek help when you need it. Being a “responsible adult” is challenging – everyone needs assistance from time to time. If you find that your financial situation is causing you stress but you don’t know where to turn, the friendly folks at American Credit Foundation are here to help. Contact us today to speak with one of our counselors.