Now that you have your degree in hand, you’re likely anxious to start your new life. However, don’t let the excitement distract you from drafting a plan for your finances. Careful planning early on will give you a better chance of avoiding common financial missteps.
1. Keep spending at a minimum
While it might be tempting to spend more money, especially if you just snagged a new job, it would be in your best interest to put a limit to spending before it gets out of control. Now is the time to practice good financial habits. There are plenty of budget trackers and online tools that can help you rein in your spending.
“Continue to live like a broke college student, even when your friends are starting to spend their money, and you will be highly successful with your finances,” said Brewer. Adams agrees: “College graduates have lived on the income of a college student for the past two or four years and have survived. How hard could it be to live like a college student a couple of more years?”
2. Save your money
Once you’ve mastered living below your means, it’s time to take that extra cash and put it away for a rainy day. If you don’t develop a solid financial plan, you could be just one emergency away from serious financial trouble. This is even more likely if you graduated with educational debt. Roughly 69% of graduating college seniors had student loan debt in 2013, according to a study by the Institute for College Access & Success. Their total average student loan debt was about $28,400.
“You are now making a salary or maybe you have a job, but either way you are making more money than you have ever made before. If a graduate is now earning $2,000 to $3,000 a month and decides to live on $1,000 a month, he or she can take the money saved each month to pay off debt. If he or she is debt free, that would be an opportunity to use the money to save up for a house or retirement,” said Adams.
3. Tune up your money management skills
Brewer recommends also taking this time to sharpen financial skills. When you start your first job, take a look at your employee benefits and review retirement accounts, health insurance, disability insurance, and any other benefits that will be available to you.
“Start educating yourself on personal finance as soon as possible. This can be working one-on-one with a financial planner, reading books about financial planning, listening to podcasts, or anything else,” said Brewer.
4. Don’t forget about your loans
You may want to relax a bit before starting your new life, but don’t relax too much. Make sure you don’t forget that your student loan payment will be due in just a few short months. Failing to pay your loan in a timely manner could result in a negative mark on your credit report. If you are having difficulty meeting your monthly payments, there are several repayment options available. Call your lender as soon as you think you might not be able to pay your bill. The sooner you call, the sooner they can help. “The biggest mistake that I see recent graduates making is forgetting that their student loan payment will start arriving in six months,” said Adams.
5. Avoid “lifestyle inflation”
Don’t let a rise in your income tempt you to purchase a lifestyle to match. “[Many new grads] go and rent a two bedroom, two-bath luxury apartment. They proceed to purchase “buy now, pay later” furniture for $4,000 to fill up that apartment. Some people even take on car payments and credit card debt in the six months leading up to student loan repayment. They max out their budget and haven’t even bought groceries yet! This behavior puts them into an endless cycle of deferment and default. It is okay to upgrade your life a little after graduation so that you are no longer eating Ramen noodles, but don’t stretch your financial life so thin that you never recover!” said Adams.