Essential Personal Finance Steps for New College Graduates

6/20/2024

Graduating from college is an exciting milestone, marking the transition from student life to the professional world. However, it also comes with a host of financial responsibilities. Here are the key steps every new college graduate should take to get their finances in order.

Create a Budget

The first step in managing your finances is to create a budget. Track your income and expenses to understand where your money is going. Your budget will change over time, especially if you’re still searching for a full-time job, so make sure to edit your budget as your circumstances change.

List all sources of income including your salary, any side hustle, or other income stream. Likewise, track all of your expenses using an app like YNAB or a spreadsheet and set categories in your budget for rent, utilities, student loans, groceries, entertainment, etc. Now, stick within the budget for the next month.  Budgets should be a living, breathing thing, so adjust your budget as your income or expenses change over time.

Keep on Top of Your Student Loans

Student loans are often the largest financial burden for new graduates. Understand your loans: know who owns your loans, the total amount you owe, interest rates, and repayment terms. There are different repayment options available depending on the type of loan you have.

There is a six-month window after your graduation, before you are required to begin repayment. However, you can begin to repay your loans as soon as you’re able.  The sooner you begin, the faster you will finish, and the less interest you will pay overall. Importantly, make your payments on time. Late payments can hurt your credit score. To avoid this, set up automatic payments so you never miss a due date. If possible, pay a little extra each month to reduce the principal faster and save on interest.

Build an Emergency Fund

An emergency fund is crucial for financial security. Aim to save at least three to six months’ worth of living expenses. Start small, even saving $50 a month can make a difference over time. Treat it as just another ‘must pay’ bill and set up an automatic transfer to a high-yield savings account. To boost your savings, use windfalls wisely. Tax refunds, bonuses, or gifts can significantly boost your emergency fund.

Manage Your Housing Costs

Housing will typically be your largest monthly expense. If you can live with your family in the short term, it will help you to save for a deposit for either a rental or to purchase your own home. Renting can be more practical if you’re not planning to stay in one place long-term. The ‘rule’ is to keep your housing cost at one third of your monthly income. Consider living with roommates to share costs and keep your housing expenses manageable. In addition, some landlords might be willing to negotiate rent prices or offer incentives for longer leases.

Start Saving for Retirement

It’s never too early to start saving for retirement. Contribute to your 401(k) or open a Roth IRA. If your employer offers a 410(k) match, be sure to contribute the percentage required to max out the employer’s contribution. Once again, set up automatic contributions to your retirement fund to ensure consistent saving.

Build Credit

Good credit is essential for future financial goals like buying a house or car. The most important point to note for building good credit is to pay your bills on time. Late or missed payments will negatively impact your credit score more than any other factor. Use credit cards responsibly and keep your balance low, paying off the full amount each month. A great rule of thumb is that if you can’t pay off your credit card balance in full each month, then you can’t afford to keep funding that lifestyle. Take another look at your budget and modify it accordingly.  Then pay more than the monthly minimum required payment until you can pay off your credit card bill each month.

Regularly check your credit report for errors and address them promptly. You can monitor your credit at any of the three major credit bureaus.

If you have multiple debts and are starting to struggle with them, consider a counseling session with a Navicore Solutions credit counselor

Plan for Taxes

Understanding your tax obligations is important to avoid surprises. Start by knowing your tax bracket, if your employer isn’t removing taxes from your pay, you’ll need to understand how much you need to set aside for federal, state, and local taxes. Then, file your taxes on time. Use tax software or hire a professional to ensure you file accurately. If you’re getting a large refund or owe a lot at tax time, consider adjusting your withholdings to better match your tax liability.

Invest in Yourself

Continual learning and skill development can enhance your career prospects and therefore your earning potential.

Take courses on online platforms like Coursera, Udemy, and LinkedIn Learning. All of these companies offer affordable courses. Attend workshops and seminars in your field. These can provide networking opportunities in addition to new skills.  Read books and articles to stay informed about industry trends and best practices.

Taking control of your finances as a new college graduate is crucial for building a secure financial future. By creating a budget, managing student loans, building an emergency fund, and following these other steps, you can set yourself up for financial success. The habits you establish now will have a lasting impact on your financial well-being in the long-term.

 

 

 

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