We’re heading into graduation season, which means there are a lot of 22 year olds out there who are probably walking around completely freaked out about their personal finances now that they have to live in the “real world.” If they’re lucky and their parents let them return to the “nest” they may have a little reprieve before having to face it. But inevitably, college graduates will exit the stage with diplomas in hand to embark on careers; and for some, financial independence. Unfortunately, financial literacy is a subject that receives too little attention, especially from young adults.
So if you happen to have a grad in your life, you may want to pass on the following. Consider it part of your gift – imparting some timely advice on how to make the financial transition after college a smooth one. After all, careful planning early on will give new grads a better chance of avoiding 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.
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. And on that note…
3. 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 (in most cases, lenders give you a 6 month grace period). 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.
4. Tune up your money management skills
Take 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.
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 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!