Graduating from college can be downright scary. You’re now financially independent, and with that independence comes a lot of responsibilities, such as paying bills, holding down a job, and ensuring you’ve got a healthy savings account. It may seem overwhelming, but becoming financially independent is definitely doable. So take a breath, relax, and check out these seven money management tips.
1. Take on a moderate amount of debt
Recent grads often lean one way or the other when it comes to debt. Some enjoy the thrill of swiping their plastic a little too much, begin racking up debt, and get bogged down with interest rates and fees. However, U.S. News & World Report writes that avoiding debt altogether is also a mistake. There are loans, such as student loans for grad school or a mortgage, that are good investments.
Using credit wisely also allows you to start building a solid credit history, which will come in handy when you’re ready for a loan. So how do you maintain the balance between too little and too much debt? Build your credit history slowly. Open up accounts in your name, use your cards responsibly and then make sure you pay the cards off in full and on time.
2. Understand living expenses
Once you’ve graduated college, you’re going to have a whole new assortment of expenses. In addition to rent, you’re going to have to start paying utilities, which typically includes electricity, water, and gas in addition to other costs such as groceries, Internet, and cable. Mint recommends asking utility companies for a history of your property, which includes average bills for the past year or so, giving you an idea of what to expect cost-wise.
3. Create a budget and stick to it
A new job and regular paycheck are both exciting. However, don’t go crazy and start spending too much money just because you have a steady paycheck. In fact, the easiest way to stick to a budget is by continuing to live a frugal college lifestyle, writes Bankrate.
Once you know how much you’ll be making, make a list of your monthly expenses. If you get done budgeting and see you have no leftover money each month, it’s time to re-work the budget. Start cutting expenses or finding cheaper alternatives so you have a little extra left over for your savings and retirement account. When you budget, also allot some of your earnings as “fun money,” so you have a budgeted amount to stick to each month.
4. Start an emergency fund
If you start saving in your early twenties, you’ll be surprised at how much you’ll accumulate in even a couple of years. But many people don’t look at it like that. Instead, they view saving as something they can start doing later. The problem with later, though, is that it never actually comes.
Money Crashers writes that it’s important to have an emergency fund available, which should contain a few thousand dollars. You never know when a big repair is going to pop up, and there’s always a small chance you could get laid off. In any of these events, having an emergency fund will help you out of whatever predicament pops up, ensuring you don’t start overusing your credit cards.
5. Don’t wait to save and invest
This can be hard when you’re working with an already tight budget. It’s important, though, and it’s something you need to include in your budget. In fact, U.S. News & World Report suggests saving at least one-quarter of your income for future goals, including retirement. Make sure your emergency fund has a nice cushion before you start saving for other things.
Your next step: begin adding money to your retirement account. Look at whether your employer offers a 401(k) matching program. If so, it’s a must. Passing it up is like saying no to free money. You can then look into opening an after-tax savings account for your other goals, such as traveling, a house, or car.
6. Get insured
Bankrate writes that graduates may be tempted to save money by skimping on insurance. But that’s a mistake. “The No. 1 cause of bankruptcy is an unexpected medical emergency, and people in their 20s are the least-insured group in the country,” says Beth Kobliner, author of Get a Financial Life: Personal Finance in Your Twenties and Thirties.
There are plenty of ways to ensure you’re insured, particularly right after college. For example, the new healthcare reform law allows you to stay on your parents’ plans until you’re 26. In some states, you can remain on their plan until you’re 30. But there is also other insurance to consider.
Bankrate suggests getting renters, disability, and umbrella liability insurance to protect yourself. Renters insurance will ensure your belongings are covered if something were to happen to your apartment. If you suddenly become disabled (it can happen even when you’re young), disability insurance will help cover the costs. In addition, a personal umbrella liability policy protects you if you’re sued or are found liable for damages.
7. Work to pay off your student loans
Get rid of loan debt as fast as you can. Many people don’t stress about their student loans too much because the monthly payments are small, and the interest rates are usually fairly low. But it’s still debt, and as long as you have it, you owe someone something. When you’re in your thirties, do you still want to be carrying these loans around with you?
If you’ve also got credit card debt, pay that off first and then tackle your student loans, Money Crashers suggests. Remember: there is no good debt. The sooner it’s gone, the better.