Are you a recent graduate? Congratulations! Just the fact that you hold a diploma means you are better positioned for financial success than you were just a few weeks ago. No doubt, you have put in many years of hard work, dedication, and focus. Those same skills are also what you need to get yourself on the right track financially, and there is no better time to develop good financial habits than right now.
Here is our advice for recent graduates looking to make good financial decisions:
- Make a budget. The first step to good money management is knowing how much money you bring in and how much you spend. There are lots of great budgeting tools online, but really all you need to do is write down every one of your monthly expenses (rent, food, transportation, entertainment, utilities, healthcare, loans, etc) and compare them with how much money you make every month. If you are spending more than you are making, something needs to change immediately.
- Save as much as you possibly can. The sooner you start saving, the better. Time is the greatest advantage to building wealth, and the earlier you start the bigger advantage you have. If this is your first time having a full-time job and financial independence, get used to saving not spending. Set up automatic transfers into a saving or investment account so that saving is on autopilot, and so you don’t get used to having extra money to spend. How much should you save? This is dependent on so many variables, but shooting for 10-20% of your paycheck will transform your financial future.
- Minimize your expenses. The biggest expenses for young people include housing, food, and student loans. We will get into student loans below, but for now, focus on those expenses that you have the most control over. Housing will likely be your biggest expense, unless you can find a way to live rent-free. Do everything you can do reduce your housing expenses, whether that means living with relatives, having roommates, or just living somewhere that costs less than what you could possibly afford. Minimize other expenses by eating out less (and finding deals when you do) and really thinking about each and every purchase you make.
- Reduce your debt as quickly as possible. If you have debt, whether it is student loans, healthcare debt, or credit card debt, paying it off quickly should be your number one priority. Focus on your highest interest rate debts first, and look for money-saving opportunities to consolidate debt when you can. High interest debt is one of the hardest holes to climb out of, so do whatever you can do avoid it. If you have it, make paying it off your most important financial goal.
- Plan for emergencies. No matter how much you plan, emergencies and unexpected setbacks happen. Don’t let these challenges damage your financial health for life. Instead, plan for the unexpected by having a rainy-day savings account that covers 3-6 months of living expenses. This will help you avoid taking on future high-interest debt.
- Find frugal (or free) ways to have fun. You worked hard as a student, and you definitely deserve to have some fun! But fun does not need to be expensive, and you will be able to have much more of it if you discover ways to celebrate yourself and have fun that do not disrupt your financial goals. Making friends with other people who prioritize financial health over constant spending is very helpful as you create your post-graduation life.
- Reevaluate constantly. When you were a student, you received frequent feedback (in the form of grades) about how you were doing. Now it is time to give yourself frequent feedback on your financial performance. Make a habit of checking your budget, debt balance, and savings often. Are you meeting your goals? If not, it is time to adjust your plan.
Don’t forget that it is okay to ask for help. Just because you have graduated, doesn’t mean you need to do everything on your own! Reach out to financially-literate friends and family or seek out a financial advisor who can help you make the best decisions and set you up for a bright financial future.