After spending several semesters and tens of thousands on college, you finally reached your academic destination: graduation.
Your degree is framed and hanging on your bedroom wall. Your cap and gown are hanging cleanly in your closet.
(Or if you’re like me, you asked the university to mail your degree to your apartment and you skipped the graduation ceremony altogether. But why ruin the “new college grad” imagery?)
Compared with the long days of lectures, homework assignments, and group projects – all while working a part-time job – life after graduation looks like a proverbial walk in the park.
Graduating from college opens up a whole new set of opportunities:
- A stable income from a full-time job (if you’re fortunate)
- The chance to move to a different city and develop new relationships
- The option to settle down, buy a house, and prepare for the future
- Some additional money to spend on leisure in your newly-rediscovered free time
Are you ready to manage your money?
While earning “adult money” is exciting, you may find yourself facing a learning curve when it’s time to start handling your personal finances.
Even as a business school grad myself, I didn’t have the basic financial literacy I need to prepare for my future.
That’s why, just a year after graduation, I had to stop and ask myself this question, “Where’s all my money going?”
While it wasn’t a fun realization, this financial epiphany sparked a sudden interest in understanding and improving my financial situation.
My only regret?
Not starting sooner.
Although I was able to catch and correct my financial mistakes, there’s no reason why I couldn’t have started making smarter decisions with my money even sooner.
That’s why I’d like to share 10 tips I wish I’d already known when I first graduated from college.
1. Calculate your take-home pay
If you were fortunate to have a full-time job offer waiting for you after college, how did you feel after receiving your first paycheck?
As a new college grad who’s still used to Ramen noodles and dollar menu deals, you may have felt a mixture of excitement and disappointment when the money first hit your checking account.
After all, on average college grads earn 50% more money than those with just a high school diploma.
Unfortunately, many new college graduates underestimate just how much of their paycheck is reduced by federal and state taxes, health care premiums, and more. (Next time you get a raise, see how much your paycheck actually goes up.)
If you received an offer for $42,000 in salary each year, don’t assume that you’ll see $3,500 hit your bank account every month.
Instead, wait until your first couple paychecks have arrived so you have a better idea of your take-home income. This is the amount that you’ll actually have to work with each month.
(In the example above, your monthly take-home pay might be closer to $2,500 – definitely a difference you’ll need to account for when budgeting!)
2. Don’t spend everything you earn
After you figure out just how much money you really have to work with, it’s important to remind yourself of one of the most basic mantras in personal finance:
Pay yourself first.
Don’t assume that you safely spend everything you earn each month and still find yourself prepared financially for the future.
Do you know how much you spent on eating out at restaurants last month?
If you don’t have a specific food budget in place, there’s a good chance you are spending much more than you think. (Eating out regularly and traveling frequently were two of the main issues that really hurt my wallet after graduation.)
To start planning ahead for your financial future – whether that’s paying off your student loans, contributing to a 401k or saving up for a down payment on a house – start by creating a monthly budget that sets aside 10% or more of your income toward “paying yourself” each month.
“A part of all you earn is yours to keep. It should be not less than a tenth no matter how little you earn. It can be as much more as you can afford.” – The Richest Man in Babylon
3. Watch out for lifestyle inflation
Graduating from college often comes with a significant pay raise, especially if you’re making the jump from a student job to working full-time.
Do you have plans to buy a new car or move into a nice apartment of your own as a “reward” for finishing school?
You may want to stop and think about how these decisions will impact your finances over the long run.
I’m not suggesting that you have to keep driving a beater car or living with roommates forever. However, big purchases (or long apartment leases) can affect your personal finances for years to come. Stop and reflect on whether your spending decisions accurately reflect your goals and values – or if you’re just trying to “keep up with the Joneses.”
If you want to celebrate getting a raise, here are some specific ideas that’ll help you do to so responsibly:
- Wait to make any decisions until you’ve received your larger paycheck two or three times (that “I’m rich!” feeling doesn’t last)
- Take time to revisit your budget and increase your savings or investments
- Celebrate your raise with a modest one-time purchase (like concert tickets or a weekend trip) rather than making a lifestyle upgrade that will continue to be an expense
4. Build your emergency fund
Are you prepared to handle an unexpected financial crisis, such as job loss or medical bills?
In the past, you might have relied on the assistance of family members or the convenience of credit cards to make it through difficult times.
To become financially independent after college, it’s important to create your own “emergency fund.” This rainy day fund is an easily-accessible (but rarely used) checking or savings account with somewhere between 3-6 months of expenses.
This emergency fund is different than short-term savings you might use to pay for a vacation, new laptop, or down payment on a car. Your emergency fund is set aside exclusively to offer you some security and peace of mind should an unplanned, unavoidable, and costly expense come your way.
Does setting aside 3-6 months of expenses (often $5,000 to $15,000) sound unreasonable?
Even having $1,000 set aside in case of an emergency can offer a huge amount of relief – financially and emotionally.
If necessary, start small but make consistent contributions to your emergency fund. Most personal finance experts consider having an emergency fund to be even more important than paying off your debt or saving for retirement.
5. Pay your credit card balances in full
It’s one of the biggest credit card mistakes you can make:
Not paying your balance in full each month.
Carrying a balance on your credit cards can cost you thousands of dollars over your lifetime in interest charges – perhaps even more!
Don’t let credit card perks like free travel or cash back tempt you into buying things you can’t afford. The value of those benefits can quickly be outweighed by the costs of interest and annual fees.
Regardless of your current situation with credit cards, make sure you’ve set up automatic payments to cover at least the minimum required payment each month. It’s far too easy to overlook a payment date and find yourself with a dinged credit score or unnecessary late fee!
If you do have credit card balances that you’re carrying from month to month, they paying off this debt will become your #1 priority. Create a reasonable budget that will prevent you from needing to take on additional debt and will allow you to get the balances paid off as quickly as possible.
6. Tackle your student loans efficiently
Did you rely on student loans to cover your college tuition and expenses?
If so, you’re not alone. Over 44 million Americans are paying an average of $350 each month toward student loan payments.
So what’s the best way to handle student loan payments?
Believe it or not, the most efficient way to handle student loan debt isn’t necessarily to pay it off as quickly as possible.
While it’s generally a great idea to throw any additional money you can toward paying off debt, there are several valid reasons to just make the minimum student loan payment each month:
- You don’t have an emergency fund in case of unplanned expenses
- You aren’t taking advantage of “free money” through your employer
- You have higher-interest debt on credit cards or an auto loan
- You can safely invest your money and see a higher return than your loan interest
If any of the above apply to you, it might be better to put your additional money there instead of paying down your student loans (although you should always make the minimum payment!).
But if you’ve already built an emergency fund, invested in your retirement accounts up to the employer match, and paid off any credit cards… Wipe out that student loan debt!
7. Be mindful of your credit score
Up to this point, your credit score may have had minimal impact on your personal life. You may have needed a co-signer if you’ve taken out student loans, but odds are, you have a limited credit history and most of your credit-dependent decisions are still ahead of you.
Having a good credit score will help you:
- Qualify for the lowest interest rates on loans
- Show “creditworthiness” if you decide to buy a house or car
- Give you access to credit cards with the best rates and perks
There are five major factors behind your credit score, but the two most important habits to building your credit score are:
- Making an on-time payment toward your debt/loans each month
- Keeping your balances as low as possible (especially on credit cards!)
As long as you’re paying your credit card balance in full each month and staying consistent with payments on any additional loans (auto loans, student loans, medical bills, etc.), your credit score will gradually improve over time.
You don’t need a perfect credit score, but reaching (and staying over) 750 is a good target goal to have the best financial options when you need them.
8. Start investing now
While the quality of financial literacy in high school and college may be lacking, there’s one principle that seems to be driven home:
Compounding interest: accumulating interest on your interest earned
Take a minute to put your numbers into this 401k calculator (or just use the default numbers already given).
What’s the biggest factor for boosting your retirement savings?
Here’s one example where you start contributing 10% of your income to a 401k right after graduation. By age 65, you’ll likely have over $2 million in your portfolio.
But what if you decide to hold off for 10 years before you start investing – how much does it cost to wait?
To earn roughly the same amount, you’ll have to contribute 2.3 times as much from each paycheck.
In the first scenario, you contribute $340,000 and the rest is earned through investing. In the second scenario, you have to contribute an additional $200,000 of your own money to make up for lost time.
It pays to start early!
9. Take advantage of employer perks
How does “free money” sound – pretty good, right?
You may be leaving exactly that on the table if you’re not taking advantage of any “employer match” offered on your contributions to retirement accounts.
This employee perk isn’t offered by every company, so you’ll want to check with your Human Resources team. Sometimes, even if employer matching is offered, there are limits in place, such as a minimum tenure with the company or what percentage your company is willing to contribute.
Making the most out of the employer match can sometimes double your retirement contributions instantly! It could take anywhere from 7 to 10 years to double your contributions if you’re relying simply on the market.
Employer matches aren’t the only perk you want to take advantage of. Check with your manager or HR team to see if any of the following might be available:
- Free or subsidized public transit passes
- Tuition reimbursement for additional schooling
- Career development budget for certifications or conferences
- Free gym membership
- Company contributions to a Health Savings Account (HSA)
These days, many companies are creative in the types of extra benefits they offer to attract and retain top talent. Find ways to make the most of what’s offered!
10. Continue learning and developing new skills
Having a college education is quickly becoming the norm for many occupations. If you want to set yourself apart for both financial and career success, you’ll need to continue learning new ideas and developing additional skills.
Now I understand, if you’ve spent any of your semesters taking early-morning classes, you might be looking forward to sleeping in now that you’ve graduated.
While I won’t blame you, you might want to consider continuing to wake up early each morning to focus on your own personal and career development. After a long day at work, it’s going to be hard to remain motivated and focused after you get home.
Plus, wouldn’t you rather spend that time with friends or doing something you enjoy? Aside from eating out every night (see points 2 and 3)…
Regardless of what time you decide to work on developing new skills, there are many ways to be successful:
- Complete an evening course at a local college or coding bootcamp
- Start a side hustle like driving for Uber, freelancing on Upwork, or creating your own blog
- Study for a certification exam or participate in a local meetup
- Read personal finance tips that will help you with practical skills such as budgeting or taxes
Be proactive in building a career that fits your skills and interests. Spending just a few hours a week on skill development will quickly set you apart.
By implementing these 10 money tips now, you’ll quickly find yourself more financially prepared than many of your peers.
Don’t wait until you’re facing a major decision, such as buying your first home or starting a family, to start preparing for the future.
Choose one of the tips above and get started today!
What’s one financial lesson you wish you’d learned before graduating from college? (Or current students, what’s your biggest financial question as you complete school and begin your career?)