Graduating from college is all about transition. Grads are transitioning from student life to the workforce, from being focused on their education to focusing on their career. As a student, choices involved balancing grade-point averages, exams, class schedules and college life. For graduates, choices involve making the right career choices, going on job interviews and moving away from campus -- or to another city or state. While everyone's financial situation is different, here are five tips to keep your finances in order.
1. Build a budget. One of the most important transitions for most new college graduates is taking responsibility over their finances. With the financial freedom of a new job, it may seem like you don't need to manage your money. But with new expenses, such as rent, utilities and car payments, plus your student loan bill, it can be easy to overspend. A good budget not only gives you a snapshot of your income versus your regular bills, it gives you the peace of mind to know when you can afford a night out or an impulse buy.
2. Deal with your debt. The class of 2016 holds record-breaking student loan debt, around $37,000, according to calculations from student loan expert Mark Kantrowitz. The bad news is that debt levels, and the number of students graduating with student loans, have been steadily increasing since the 1990s, so 2017 may break last year's record. The good news is that salaries for college grads have been rising as well.
Whether it is from student loans or credit cards, it is important to focus on reducing your debt. Graduating with debt can feel discouraging, but having a plan to pay off your debt can help you get back in control of your finances. Focus on paying off debt with higher interest rates first, like credit cards. When you can, make extra payments. Paying off your debt early will lower your interest charges and can save you money over the life of the loan.
3. Retirement planning starts now. It is never too soon to start saving for retirement. It may seem odd to think about retirement when you are just starting out in the workforce, but in many ways, your first contributions are the most important. Many employers offer a retirement plan called a 401(k), which allows you to contribute money pre-tax. The goal is to have your money earn interest over time. The more time you give it, the more return you should see. Waiting just one year to contribute to your 401(k) could lower your retirement by up to $100,000, according to calculations made on a 401(k) retirement calculator. Waiting 10 years could drop your 401(k) by half.
4. Save for emergencies. While often neglected, planning for emergencies should be a priority. Having an emergency fund can help with anything from an unexpected car repair to high medical bills to unemployment. To start, aim to save enough to at least cover three months of your bills and expenses. Creating an emergency fund is as simple as setting up a direct deposit from your paycheck to a savings account. This way, your fund will automatically grow every payday.
5. Upgrade your accounts. Graduation is a good time to reevaluate your bank and credit card accounts. As you find a job and start your postgraduate life, your financial needs will change. The checking account you were eligible for as a student may not provide you with the flexibility or benefits you need now. Check what other account options your bank offers. Be sure to shop around to make sure you have the right accounts, and the right bank, for your new financial situation.
Don't forget to update your credit cards. Used correctly, credit cards are an essential tool to establish your credit history. Good credit can lower the interest rate you can get on auto loans and home loans. The credit cards that students are eligible for are generally entry-level cards that have a higher interest rate and fewer rewards and benefits. Look for a credit card that gives you the most rewards for your normal spending habits and financial goals. If you think you may occasionally carry a balance, look for a card with a low interest rate. If your goal is to travel, look for a card that rewards you with miles.
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