Money Health

5 Money Tips for Recent Grads

Money Tips for Recent Grads
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Graduating from college marks a huge time of change in your life. You’re officially joining the real world and there are some things you’ll need to consider. Pretty soon you’ll be faced with new challenges, like looking for a job, paying back student loans, and figuring out where to live next. This may sound daunting, but fear not — we’ve got five money tips for recent grads to help make the transition out of college go smoothly.

Create a budget

After landing a job and getting used to the amount of take-home pay you’re earning, figure out how much you can afford to spend each month. Add up your necessities like rent, utilities, transportation, groceries, and debts. If there’s nothing left over to save at the end of the month, go back to the drawing board, crunch some numbers, and figure out what expenses you can cut back on. Establishing and sticking to a budget is essential for long-term financial health.

Manage your debt

One of the most important money tips for recent grads involves managing your debt. Credit cards in particular can make it tempting to spend money you don’t have. Don’t fall into that debt trap and let it hold you back from achieving financial freedom. If a credit card purchase you’re considering doesn’t fit into your budget, reconsider whether you really need it. If you’ve accumulated credit card debt, create a plan to pay it off as fast as you can.

Whether it’s credit card debt or student loans, it’s important to reduce your debt load as quickly as possible. Getting out of debt will help free up your finances so you can make more of the decisions and investments you’ve been planning for. You need to be honest about what you owe, what it will take to pay off your debts, and have the courage and dedication to tackle it head on.

Protect your credit score

New graduates need to be aware of the problems associated with having poor credit. A low credit score can seriously limit your opportunities to make a big purchase, secure an apartment lease, obtain a loan, or even land your dream job. So, understanding what affects your credit score and how to protect it can have a serious impact on these major life decisions.

Each person’s credit score is calculated based on 5 factors: payment history, how much you owe, the length of your credit history, the type of credit you use, and the number of inquiries you’ve made into obtaining more credit. Protect your credit score by:

  • Paying your bills on time and in full each month. Missing payments means you’ll not only get hit with fees, but you’ll also see your score drop.
  • Paying down your debts as quickly as possible.
  • Using each type of credit appropriately. Maxing out a credit card to buy a car doesn’t look as good as taking out a reasonable loan.
  • Avoiding the temptation to apply for multiple credit cards or lines of credit within a short period of time.

Ultimately, your credit will affect almost every major financial decision in your life. The better your credit, the more money you’ll save in the long run.

Establish an emergency fund

No matter what stage of life you’re in, it’s crucial to have a stash of money set aside for the surprises life throws your way. It’s okay to start small, but eventually, you’ll want to give yourself a financial cushion of at least six months. It will help tide you over if you face a job loss, unexpected medical bills, or run into other financial emergencies. Debt or no debt, an emergency fund is vital to your overall financial health, and one of the most crucial money tips recent grads can heed.

How much should you save in your emergency fund?

Find out here.

Start saving for retirement

Even though retirement seems years away, the earlier you start saving, the better. Consider opening a Roth IRA account and contribute as much as you can to it each month. It may not seem like much now, but with compound interest, your funds should continue to grow over time. If your employer offers a match, take advantage of it. Not participating enough to get your 401k employer match is like leaving money on the table.

Want one less thing to remember? Set up automatic transfers from your checking account to your Roth IRA and emergency savings accounts. There are plenty of apps out there to help with these efforts, including ones that round up purchases to the nearest dollar, with the extra change going to savings or investment accounts. Soon, you won’t even miss the extra cash, and your money will be there for you when you need it.

Money and debt management 101

Following these money tips for recent grads can help you maximize your savings for a lifetime. But there are many more tools out there as well, and learning how to deal with debt, money, and planning for your future doesn’t need to be hard. We have developed a simple to follow guide to help you find the tools you need to move to a better financial future. Get started by downloading our free guide right now.

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Aimee Bennett is a communications consultant for Freedom Financial Network. She’s passionate about marrying business with communications, making often-complex personal finance topics easy to understand through clear, concise and accurate language. When she’s not at her desk working with words and grammar, you’ll find her on her bike, in the pool, on a ballroom dance floor or teaching English as a Second Language.