If you're a recent college graduate or about to graduate this year, there are several financial considerations to make that you didn't have to think about while you were still in college. You should think about making money moves right now before you graduate from college. Now is the time to start thinking about your financial future.
Money Moves to Make Right After Graduating College
Although planning out your short and long-term financial situations may seem like a chore when you're in the midst of writing essays and studying for tests, here are three extremely important things to consider for soon-to-be graduates.
Figure Out Student Loan Repayments
If you're drowning in student loan debt after graduation, then your first priority should be getting on track to start paying off your loans. There are several options available for paying off your student loans, including income-based repayments for federal loans, refinancing your private student loans, and possibly even finding a job that will pay off your student loans for you.
Once you figure out how you can pay off your student loans, your next step is determining when you need to start (it's usually not right away, but 4-6 months after finishing your credential or degree) and how much you should pay off.
The federal government's student loan website has a nifty student loan repayment calculator to help you determine how much money you should put towards your student loan balance each month. It can be advantageous to pay off more than your minimum payment because this will decrease the timeframe of the loan as well as save you tons of money on student loan interest.
It's important to ignore student loan myths at this stage because many people get caught up in the frantic race to get rid of debt and sometimes fall into traps that may end up costing you money rather than saving money. Don't be so quick to sign up with companies that promise to solve all of your debt problems; instead, follow the government-approved guidelines to figure out the best path to debt-free living after college.
Move Out on Your Own
If you've been living with your parents or in college dorms for most of your higher education experience, then it's probably time to move out on your own. Planning carefully at this stage will prevent you from feeling overwhelmed by the whole experience of settling into a new job, paying off student loans, and starting out in the world on your own.
Unless you have a ton of money in the bank or a partner or spouse who owns a home, you will likely be a first-time renter, which comes along with its own set of benefits and pitfalls. To avoid stretching your budget too thin, personal finance experts agree that you shouldn't use up more than a third of your income for rent.
So, if you're making $3,000 per month after taxes through your first post-college job, you won't want to spend more than $1,000 per month on rent and utilities. Spending $1,000 can be difficult in areas with a high cost of living, which means you might want to find a roommate to lower your monthly living expenses.
Don't forget the importance of having a good credit history at this point in your life. Landlords often perform credit checks to determine the financial viability of potential renters, and your utility payments will also incrementally affect your credit history as well.
Even if you're still paying off student loans, investing is not only a possibility but a necessity to achieve upward financial mobility. Now that you're not a broke college student living off of ramen noodles while spending every waking hour studying and writing essays, the time you spend working to make money should be reinvested so you can make your money work for you.
Investing can seem overwhelming at times especially when you're dealing with a new job, new home, and student loan repayments. But, even if you weren't a business or economics major in college, you should at least start saving for retirement until you feel comfortable diving into more serious investments.
One of the best ways for new investors to get started is with Betterment, which is a low-cost robo advisor designed to be a hands-off way for people to build wealth. Betterment offers a free mobile app, a variety of investment accounts – including IRA retirement accounts – and simple explanations for everything that they offer, which can be enormously helpful for any recent college graduate who feels apprehensive about investing.
Graduating from college is an incredible achievement, and the road ahead will be easier than you might think as long as you plan ahead. Whether you just graduated or you're about to graduate soon, there's no better time than now to start figuring out when you'll pay off your student loans, where you might want to live (and how much you'll pay in monthly rent), and long-term goals such as saving for retirement.
By starting now, you'll be well on your way to zero student loan debt and financial stability. Now is the time to start thinking about your financial future and the money moves that you will have to make right after graduating from college. Waiting until graduation may be too late.
"Are you on a laptop all day? Would keeping an excel file or Google doc file help you track your expenses easier? Would it be more convenient to keep an old fashioned pen and paper type of budget? How about keeping a running tab on the fridge so that you are tracking all expenses?
"For the few that actually look at their goals again, it’s common to revisit them only at the end of the year. This is a crucial error. As our circumstances may change day to day and month to month, so will our goals. A lot can change in twelve months, which is why I propose reviewing once a month, or at the very least every three months.
Revisiting also keeps our desires relevant. It’s helps us remember that we even have them. Ideas aren’t enough, we must execute.
As the great Thomas Edison said, 'Vision without execution is hallucination.' " -Jiu-Jitsu Finance
Increasing your income
"After you have lowered your expenses, it is time to bring in more income. There are many ways to bring in more income especially during the holiday season. Maybe your full-time gig will let you work extra hours for overtime. In addition, retail stores typically hire for the holiday season. That part time holiday gig could turn into a longer gig...
Retail jobs aren't the only part-time jobs available. There are plenty of other side hustles you can pick up right at home to make extra money like: Freelance Writing, Virtual Assistant, Social Media Management." -Financially Fit & Fab
Turn on your automatic savings
"Another no-hassle way to save is by setting up an automatic transfer to your savings account. By automating your transfer, you're making sure that you don't forget or pay your savings last–and as a bonus–automating your savings means you never "see" that money and subsequently makes it sting a little less.
Two new apps that I am loving lately are Digit (which has a cult following). It automatically transfers money from your checking account you won't miss. I also love Qapital, which has rules you can set to "save the change" from your purchases. I saved over $75 my first month of Qapital, which was really astonishing to me. Click here to give it a try." -Financial Best Life
Develop the habit to spend with cash than card
"To spend with cash is also an actionable way to get out of debt. According to the research on peoples spending with credit cards; it was revealed that those who shop with credit card are impelled to spend more on luxury items because they feel they are paying with “play or fun money”. In other words, people who shop with credit card spends more than required.
Evidently, finance advisors hold a strong stand on this. They strongly advise that people who are working on eliminating their debt should cultivate the habit of spending cash, to avoid being tempted to spend on irrelevant items." -MoneyMiniBlog
Leave your wallet in the car when shopping
"This trick is simple but impactful. When doing any kind of shopping, use cash, and only take the amount of money you want to spend in the store with you. Leave all other cash, credit cards, and debit cards in the car.
This is very powerful, especially when grocery shopping. In addition to the amount you plan to spend, you can consider bringing in a small cushion of a few dollars (in case there are hiccups at the register). You will shop (and spend) completely differently when you only have a hundred dollar bill with you versus a hundred dollar bill and your debit and credit cards.
Don’t give yourself a way to spend more money than you want to — and you won’t." -Hope + Cents
Start and maintain an emergency fund
"There is no fixed formula for how much you should have in an emergency fund. Some school of thoughts say 6 months’ worth is sufficient, some say a year’s worth. Everyone’s situation is different and as such, each strategy should differ. To start however, I would suggest understanding your spending habits, and then implementing a 3-6-9 guideline.
3 Months: If you are single without kids, renting, no car, partially dependent on parents for income or any combination of these factors, start off with a target of 3 months’ worth of expenses for a rainy-day fund.
6 Months: Married, kids under 18, own a house or condo, own at least one car, or any of these combined, the base target should be 6 months’ worth of expenses (if married, base it off the income of the highest earner).
9 months: Self-employed, freelancers, anyone with a volatile job or unpredictable paycheck, 9 months’ worth should be the benchmark." -Investment Conversations
How students should avoid the debt trap
"The easiest way to prevent yourself from falling into the debt-trap is by living within or below your means (that is, not overspending). In addition, it is necessary to do research before getting credit cards (or signing any contract to take on loan/ debt) so that you really understand how it works. As a student, you must learn to treat your credit card with respect." -Investment Conversations
Build a budget and stick to it
"There are many free apps available to help you track expenses, but I always prefer using my own spreadsheets. That enables me to have the most control over what I’m doing. I understand that being able to access your spreadsheet on your phone makes tracking significantly easier, which is why I prefer Google Sheets over Excel. You can download the Google Sheets app and pull up your expense tracker wherever you are to input a transaction or monitor your spending. By combining the expense tracker as separate tabs within the same spreadsheet as the bill tracker, you can have all your finances in one easy-to-access location." -The Budget Boy
Create an automatic savings account for travel.
"Here's how this automated system specifically works for you and your travel fund. Once it's set up, it goes like this:
-Your checking account receives income.
-The next day, your checking account automatically transfers money to a separate (different bank) savings account—aka your travel fund.
Know Your Interest Rates
If you have anything that you are making payments on every month, you need to know how much interest you're paying. Make sure you know these numbers, too. Ideally, you'll want to pay debts down that have a higher interest rate first. However, there is another school of thought out there that suggests paying the bill with the lowest balance first. I'd say either way is fine as long as you're making progress and as long as the higher interest rate stuff isn't astronomical.
Action: Look at your statements or call the companies to get your current interest rates on all monthly obligations.
Negotiate Lower Interest Rates
If, by chance, you ARE paying astronomical interest rates on any of your liabilities, call and try to negotiate a lower rate. Oftentimes, if you've demonstrated a history of paying on time, the company will work with you to reduce your rate. The only trick is, you have to ask.
Action: Know your numbers and call the companies to negotiate if you're paying high interest rates.