4 Money Management Tips for New College Graduates
If you are a newly minted college graduate – congratulations on this important milestone in your life! You’ve successfully completed the required amount of credits to earn a degree that will hopefully, help you kick-start your career. But now that the commencement speeches and celebrations are over, if you are like many recent college grads, you may be feeling a bit overwhelmed, especially when it comes to your finances.
Perhaps you were primarily financially supported by your parents up until this point, and are now living on your own and are responsible for all your own expenses. Or maybe you are starting to get notices that all those student loans you took out have to start being paid back. The one thing to remember is that you are not alone. Many, many new college graduates are in your same situation and it is completely understandable that the real-world of finances can seem confusing, and yes, a bit scary. But don’t worry. Everyone has to start somewhere, and there is no time better than the present to start learning those all-important money management skills they don’t always teach in higher education. Here are four money management tips you can use to embark on your journey to financial independence with confidence.
1.Make a budget
It’s not really fun to talk about the big “B” word but it is the foundation for any effective money management plan. The first step to creating a budget is to understand exactly how much money you have coming in and how much you are spending each month. There are many online tools and spreadsheets that can help you figure out your budget. List out your take-home pay plus any other sources of income, and all your expenses, from your rent, phone bill, and student loan payment to your Netflix subscription and daily Starbucks latte.
In a best-case scenario, your budget analysis will show that you are spending less than you make. This will make it easier for you to build your savings (more on that later) and give you wiggle room for an occasional splurge, like when your college roommate decides to have a destination wedding in Bali. If you find that you are spending more than you earn, and perhaps dipping into your savings account, borrowing money or using credit cards, take a step back and really examine each budget line item to figure out where you can cut back. Could you bring your lunch from home instead of buying it every day? Rather than go out to an expensive dinner and a movie maybe you could have a casual potluck night at your apartment with friends. Keeping up with a lifestyle you can’t afford is not worth it.
Also remember, a budget is fluid and will need to be reviewed periodically as your income level and expenses change. To start creating your budget, check out sites like mint.com
for free templates.
Every budget should allocate some money toward savings. Having money stocked away in savings can help you be financially prepared for emergency situations. It is also necessary for achieving long-term goals such as buying or leasing a new car
, or putting a down payment on a house.
There are several types of interest-earning savings products you can choose based on your goals. If you want to be able to access your money at any time, a savings account is a good choice. The Simpl•e Savings account
offered by United Bank, has a low minimum balance requirement and offers a competitive interest rate that can help your money grow. This is a great option for an emergency fund or if you want to be able to take your money out at any time.
For long-term goals, consider opening a certificate of deposit, more commonly known as a CD
. CDs typically offer higher interest rates than savings accounts. In exchange for the higher rate, the bank “locks in” your money for a specified term. Your money must remain in the CD account until the term is over. If you wish to withdraw money prior to the CD’s maturity date, you will be charged a penalty fee.
3.Plan for retirement
We get it. A few months ago you were playing beer pong and eating cold pizza at 9 a.m. and now we’re suggesting you plan for your retirement? Yes. It might seem like a far way off – and it is – but that’s a good thing. The earlier you start saving for your retirement, the better off you will be later in life.
If you are currently working full time and your company offers some sort of retirement plan, such as a traditional 401k plan, be sure you are taking advantage of it. With a traditional 401k plan you designate a percentage of your salary to be automatically allocated to a retirement savings account. Oftentimes a company will match your contribution up to a certain percentage. For example, a company may offer a dollar for dollar match for any contribution up to 5%. That is free money! While 401k investments can rise and fall, you have youth on your side. Your contributions and investment returns have a chance to grow for 40+ years. Plus you’ll enjoy a tax advantage since with a traditional 401k, you contribute pre-tax money.
Don’t work for a company that offers a retirement plan? You can still start saving for your faraway golden years by opening up an individual retirement account (IRA)
. An IRA is a savings account that offers several tax advantages. Banks such as United Bank can help you prepare for your future by offering IRAs that feature a variety of fixed and variable rate options and no annual fee.
4.Use credit cards wisely
When you don’t have enough money in your checking account, credit cards can be a convenient way to pay for certain goods and services. A credit card can help you cover expenses such as auto repairs, car rentals, airline tickets, emergencies, and other major purchases. Some credit cards even feature perks like rewards points or cash back bonuses. Having a credit card and using it responsibly also plays a role in establishing a positive credit history which can help increase your credit score.
If you are looking to open a credit card, educate yourself and compare all the offers, fees, and interest rates so you can make an informed decision. United Bank offers a variety of credit card options
designed for different needs.
When using credit cards, just keep in mind this caveat: All too often students and new college grads get in over their heads with spending and do not have the income to pay off the whole balance when the bill comes. They end up accruing hefty interest and fees and getting into a cycle of revolving credit card debt that can take years to dig out of. To avoid this scenario, once you have a credit card, be sure to manage it properly so you do not accumulate long-term debt.
This next phase of your life is exciting even if it can be a little overwhelming at times. Establish smart money management habits now and you’ll be giving yourself the best opportunity for a healthy financial future.