As you walk across the stage to receive your college diploma, many thoughts are likely running through your head. If you were lucky enough to have secured a job offer, congratulations! However, many recent graduates are worried about what’s next. Whether you have a job in place, are seeking one, or plan on continuing your education, it’s never too early to take control of your finances. Unfortunately, not every college graduate is knowledgeable about personal finance. If this is the case for you, don’t worry! Follow these simple steps to help secure your financial future:
1. Make a realistic budget
This will include your take-home income minus any necessary expenses such as student loan payments, rent, and car payments—to name a few. Creating a budget will help you figure out how much money you can afford to spend or save each month. While sticking to your budget is always the goal, do also remember that budgets are always works in progress. Don’t be too hard on yourself if your initial estimates were a little off -- it’s hard to estimate paychecks and the cost of “the real world” before you’re in it! If you find yourself drifting away from your budget consistently (for good reason, of course!), simply re-allocate it. Many free online budgeting tools are also able to help!
2. Pay off High Interest Debt
Student loans may be crippling your finances. Though, you’re not alone -- many other recent grads are in the same situation. While it might be helpful in the moment, postponing or extending your repayment schedule will only hurt you in the long run. Your loans accrue interest over time, so putting off payment will cost you a pretty penny. Over 10 years, the interest alone can accumulate to thousands of dollars. Be proactive about paying off your debt, or at least making a major dent in it, from day one. This could mean living with your parents and forgoing that awesome apartment in New York City for a couple years. In conjunction with a proactive approach, consolidating your student debt is another way to take hold of your personal debt. A number of FinTech companies can help you to refinance and/or consolidate your loans. This usually translates to lower rates and monthly payments.
3. Plan for Retirement
For many new graduates, retirement planning can feel like it’s unaffordable, or like an afterthought. You’ve only recently graduated and with 40 years left in the labor force, why not wait a couple years? As the saying goes, time is money. If you are able to save now, these extra few years will give your money more time to grow. A great place to start is with an employer-sponsored plan, such as a 401(k). If one is available to you, contributing to a plan is a great way to make tax-advantaged investments for retirement. Many companies will match employee contributions, which may be fully vested immediately or vest after a period of time.
Unfortunately, employer-sponsored plans are not offered by all companies as a benefit. Not having access to a plan shouldn’t be an excuse for not saving for retirement, though. Opening an IRA is just as easy. FutureAdvisor facilitates and guides you through opening and investing in an IRA. As a recent graduate, a Roth IRA could be beneficial to you throughout your long-term investment horizon. You should consider the different tax advantages and eligibility requirements for investing in traditional and Roth IRAs.
4. Invest in Yourself
As a recent graduate, you might dread the thought of going back to the classroom. It was once believed that having a college degree meant that one had the necessary skills to join labor force. However, as the job market becomes more competitive, the labor force is becoming increasingly specialized. Depending on your area of interest, investing in your education may just help you land your dream job. This may mean enrolling in a master’s degree program or undergoing training in a certificate program, workshop, or seminar to develop important skills. You can avoid further student debt by making use of free online resources, such as online classes, ebooks, podcasts, and videos.
Becoming financially independent these days isn’t easy. A prolific rise in student debt and cost of living means that missteps in your personal finances can have long-lasting consequences. Teaching yourself basic financial literacy will put you ahead of your peers and set you up for a brighter tomorrow. Needless to say, your 20s are a great time to create lifelong memories and sweating every expense certainly can detract from that. With a sound financial education, your next vacation won’t have to burn a hole through your bank account.
The views expressed are for informational purposes only and are not intended to serve as a forecast, a guarantee of future results, investment recommendations or an offer to buy or sell securities by FutureAdvisor. All expressions of opinion are subject to change without notice in reaction to shifting market, economic, or political conditions. The investment strategies mentioned are not personalized to your financial circumstances or investment objectives, and differences in account size, the timing of transactions and market conditions prevailing at the time of investment may lead to different results. Clients may lose money. Past performance is not indicative of future results. Investments in securities involve the risk of loss. Any tax strategies discussed should not be interpreted as tax advice and do not represent in any manner that the tax consequences detailed will be obtained. Clients should consult with their personal tax advisors regarding the tax consequences of investing.