Graduating from college can feel like the end of an era. You’re leaving behind the safety of school, and in theory, you now have all of the tools you need to make it in the real world.
While you may be ready to job search, kill it at an interview, or even start a business, many new grads aren’t sure of the best ways to manage their financial health. Here are five financial tips for new graduates.
1. Making (and Sticking to) a Budget
Make a budget. Hear us out. The b-word might make you cringe, but setting a budget is one of the most important things you can do to help set yourself up for financial success.
That doesn’t mean, however, that you need to hire CPA and create a complicated spreadsheet you’ll never look at again. Think of a budget as a tool that helps you get what you want instead of something that limits you.
For example, whether you want to start saving for retirement ASAP, or just want to save enough money to buy a couch, the first step to getting there is usually setting a budget. A key to creating a budget you’ll actually follow?
Make sure that it not only accounts for necessities like housing and student loan payments, but also includes the things you actually like to spend money on, whether it’s weekly cocktails at your favorite neighborhood bar or online auctions for rare action figures.
If you try to go cold turkey on the things you normally spend your money on, you might not have the motivation needed to set aside some of that cash for your larger goals.
One other important thing to remember is that if you accidentally spend more than your budget at first, don’t give up. Financial health is typically a process, and no one is perfect. The most important thing is that you keep trying.
If you keep struggling to stick with a budget, it may be time to take a look to see where most of your money is going and adjust your budget to make it more realistic to your individual circumstances. For better insight into your spending, get started with SoFi Relay. You’ll be able to keep tabs on your cash flow and spending habits, plus find ways to save.
2. Planning For Emergencies
Many of the financial tips for college graduates focus on saving but can leave out what, exactly, you ought to be saving for. This brings us to our second money tip for college graduates: Creating an emergency fund.
By now, almost everyone knows that most Americans don’t have enough cash saved to navigate a $500 emergency . Scary, right? $500 could be one major car repair, hospitalization, or even just an unexpected security deposit on a new apartment.
When you don’t have cash on hand to pay for emergencies, it may be tempting to put it on a credit card, which, if not paid off right away, can spiral into increasing debt.
One easy way to start is to make an initial goal, say $500. As part of your budget (See? Budgets are important!), you could set aside a certain amount monthly towards your emergency fund. Once you reach $500, take a minute to celebrate, but don’t stop saving.
Your emergency fund should ideally be able to cover about six months of expenses so that you can protect yourself if you ever face extended unemployment or serious illness.
Those numbers can certainly sound daunting, so some savers might find it is easier to set incremental goals, like aiming to first save $500, then $1,000, then $1,500, and so on.
3. Putting Down that Credit Card
We know that not everyone has a job lined up right after graduation. Post-college life can be pretty rough. We see you, recent grads crashing with friends and surviving on instant noodles while you job search. It can be tempting to rely on a credit card during times of financial uncertainty, but overusing your credit card can have serious consequences.
Unless you pay off your credit card debt right away (that is, in full every billing cycle), it continues to accrue interest, which in turn increases the amount you owe. That means that, for example, a $900 couch you charged could balloon in cost the longer you take to pay it off. On top of the extra costs of fees and interest, carrying a large balance on your credit card(s) can impact your credit score.
Instead of relying on your credit card, you may opt to save up for big purchases like new furniture, and keep spending in check by following your budget. If you must put expenses on your credit card, you can help keep added interest at bay by prioritizing paying off your balance in full every month.
4. Learning About Investing
Okay, so you’re on board with a budget and have even started to save for an emergency fund. What’s next? Financial tips for recent graduates often focus only on how to manage your money for right now, but a huge part of financial health is putting your money to work for your future.
Right after graduation can be a great time to consider dipping your toes into investing. Investing is not just for super rich old guys in suits. In fact, getting started on investing while you’re younger can allow you to grow your portfolio over time.
One other common misconception about investing is that you need a ton of spare money available to get started.
The truth is that you may be able to start investing with small amounts of money—SoFi lets you start with as little as $100 a month—and grow your portfolio over time. Intimidated by the process? Talk with an advisor who can help guide you toward the right mix of investments for your goals.
5. Making a Plan For Loan Repayment
Finally, perhaps the most timely tip for new graduates: Make a plan for repaying your student loans. You may have a grace period after you graduate. If you do, you can use that time to figure out exactly how you plan on making those monthly loan payments.
Planning for your loan payments in your budget is a great place to start, but if the monthly payment seems too high to manage, there are a couple things to do that may help keep things in check.
First, make sure that you’re on the right loan repayment plan for your personal circumstances. Federal loans offer several different options for repayment , whether you want to pay your loans off as soon as possible or keep your monthly rate as low as possible. Just remember: If you aren’t making payments to at least cover your monthly interest, your loan might actually end up getting bigger!
If the federal repayment plans aren’t doing it for you, refinancing your student loans may be another option. Refinancing your student loans is a process by which you apply for a brand new refinancing loan to pay off all your existing student loans at once. Why trade in one type of debt for another?
Student loan refinancing may help you secure a lower interest rate or better repayment terms—and that can add up to major savings over the life of your loan. Loan refinancing may be especially beneficial to new grads who have secured a well-paying job or have a better financial situation and credit score than they did when they originally took out their loans.
Whether you’re ready to take on the real world or are still trying to get your feet underneath you, taking steps to protect your financial health during this time is crucial.
Congrats, grad: You’ve got this!
The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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FTC’s website on credit.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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