Financial Advice for Graduates
Graduating from college is a big accomplishment! There’s a lot to celebrate: no more afternoon lectures or assignments and, hopefully, new opportunities and increased income.
However, learning to navigate the “real world” involves a steep learning curve, which may include starting a new career, adjusting to a new city, trying to make new friends, and, most importantly, handling personal finances.
Whether you already have a job lined up or are still pondering your next move, establishing strong financial habits today can be your first step toward financial independence. This article shares advice that can help you be fiscally responsible as an adult.
- Set Your Financial Goals
After your graduation ceremonies and festivities, it’s time to set personalized goals.
Setting clear financial goals can help you improve your financial position.
Research has shown that 83 percent of people who set financial goals feel more confident about their finances after just one year.
Goals can be short-, medium-, or long-term.
- Create (and Stick to) a Budget
More than half (65 percent) of American adults don’t have an idea how much they spent in the last month.
Creating a personal budget as a new graduate can be an empowering experience.
“With an organized budget: you can track your income and expenses. If you want to make a big-ticket purchase, a budget will allow you to research your options ahead of time and ensure you’re getting the best deal,” advises Robert Cavanagh, Senior Vice President, Investments at David Lerner Associates.
“Knowing you have some money set aside for Sunday brunch or concert tickets may help you enjoy those purchases even more.”
A good rule of thumb is the 50-30-20 rule. It means that after taxes, you should dedicate 50 percent of your income towards needs (housing, transportation, groceries), 30 towards wants (dining out, gym memberships, vacations), and 20 towards savings and investments.
- Start an Emergency Fund
Regardless of how well you plan your budget, emergencies can happen.
From job loss to car repairs to illness, there are several reasons why you might need to have some stash in a separate account.
Any high-cost, unforeseeable events you may face can derail your financial planning. But with a financial buffer, you won’t have to withdraw from your savings or fall into credit card debt every time a surprise expense comes knocking.
Ideally, you want 6-12 months’ worth of expenses (rent, utilities, groceries, transportation, health insurance, auto insurance, and debt payments) in a separate high-yield savings account to give yourself some financial cushion if the need arises.
- Create A Plan to Pay Off Your Student Loan (If Applicable)
If you have student debt, you may want to determine how much you will need to pay monthly to keep your loan account in good standing. Getting out of student loan debt means having more control over your income.
The average federal student loan debt is $37,574 per borrower.
If you owe private student loans with different due dates and interest rates, refinancing could help you stay on track. Refinancing consolidates all your student loans into a single loan and might even get you a lower interest rate or monthly payment.
Most student loans have a 6 months grace period after you graduate. Take advantage of it by assessing your student loan situation and figuring out what your monthly payments will look like.
If, after the six months, you aren’t able to afford payments, you may be able to reduce or defer your payments further by providing income documentation. Together with your student loan servicer, you’ll come up with a repayment plan that works for you.
- Negotiate Your Salary
Even if you’re fresh from college with little to no years of work experience under your belt, you still have leverage during negotiation about your starting pay.
A college degree doesn’t come cheap. Your investment in education can result in higher compensation. Ensure to secure a salary that will cover your basic needs.
A good way to go about this is to calculate the living costs in your area and use the table as the rationale for your argument. Glassdoor is a good resource to find salary ranges for different companies, jobs, and cities.
It’s also vital to read up on the benefits offered and weigh them against the salary offer.
- Build Your Credit
Your credit score is an important 3-digit number referenced for just about everything, from apartments to loans and even a cell phone.
If you do not have a credit score yet, the easiest way to establish one is to open a credit card with a low credit limit, complete regular purchases, and make timely payments.
When you get your credit card, avoid carrying large balances.
You can and should keep track of your credit health by accessing your credit reports for free via AnnualCreditReport.com and reviewing them. If you find any errors or inconsistencies, you can dispute them with credit reporting agencies.
- Live Within Your Means
As you start earning more money, you may be tempted to increase discretionary spending. This may include spending more on entertainment, buying a new car, moving to a bigger house, dining out more often, or vacationing more often.
While there’s nothing wrong with splurging occasionally, if you’re not careful, impulse can snowball into a bigger issue.
A good way to counter this is to make room for extra purchases in your budget.
- Keep Housing Costs Down
Housing is the single most costly expense for new graduates.
Don’t rush to live in a house you can’t afford.
If you need to live with your folks or crash on a friend’s couch for a bit while you work things out, know that you’re not alone. Approximately 47 percent of young adults aged 18-29 live with their parents.
You will be able to devote the money you save on housing to increasing your savings and cutting your debt.
- Establish a Retirement Savings Plan
As a fresh graduate, retirement may be last on your list of priorities. I mean, why worry about retirement when you have decades to plan for it?
But if your employer offers a 401 (k) retirement plan, ensure you sign up for it and begin investing a percentage of your paycheck. If your employer matches your contribution, even better! Don’t miss out on free money.
It’s not just a 401 (k). You can start saving for retirement by opening an IRA with a bank or brokerage. The sooner you contribute, the more money you will gain in interest.
- Commit to Learning About Personal Finance
Taking time to learn about personal finance will allow you to avoid costly mistakes and help you become financially independent.
The best way to learn about the basics of personal finance is to find a financial expert who resonates with you and study their advice. You can read books and blogs or listen to podcasts.
Alternatively, you can consult a financial advisor to create a plan specific to your goals.
Your early 20s is a prime time to explore new interests and enjoy greater independence.
For all the knowledge higher education imparts to you, it’s unfortunate that many college graduates leave knowing little about personal finance.
Getting your financial footing as a new graduate can seem overwhelming, but a little planning and some discipline can go a long way. With a solid foundation, you can start working toward the goals you want to accomplish later in life, whatever they may be.
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.