6 financial tips for new grads.
Congratulations! You did it — you got your diploma, and you’re ready to take on new experiences and opportunities. But your new freedom brings new financial responsibilities, too. Following a year of economic upheaval in a job market impacted by the pandemic, it’s more important than ever to begin your next life stage with a plan. Regardless of how much you will earn — or owe — mastering solid financial habits now gives you more control over your money so you’ll have the funds you need, when you need them.
These six tips for planning, saving and budgeting can help you transition more smoothly into your next life stage.
1. Set goals
Identify your short-term and long-term financial goals by looking at what your needs are right now and where you’d like to be. Do you need to rent an apartment, buy a car to get to work or build a new business wardrobe? Do you need to purchase home office equipment for work-from-home days? Also consider your financial priorities: Do you want to focus on saving for a house down payment or paying off debt as quickly as possible? As you set goals for yourself, think about what’s important to you and what will motivate you to reach them.
2. Budget and manage expenses
If you’re relatively new to budgeting, you may wonder where to begin, especially if you’re suddenly responsible for new expenses on your own like rent, utilities and insurance. To make a budget, start by adding up all your monthly expenses and compare the total to your monthly income. Find a system for tracking expenses that works for you, whether it’s a budgeting app, like Mint, a spreadsheet or online tool.
It’s understandable that you’ll want to leave room in your budget for fun, even if it’s a low-cost activity or a mini splurge. But ideally, you’ll want some money left over each month to put toward savings goals, too. If your budget is tight, look for ways to trim expenses, like cutting a streaming service. Remember to review and revise your budget as your income and expenses change.
3. Manage student loans and other debt
Add up the total amount that you owe on all debts, from cars, to credit cards to student loans. Carefully review the terms and interest rates, then create a payoff plan. If you’re struggling with student loan payments, contact your lender about deferring payments or revising your loan terms. You may also be able to take advantage of COVID relief programs for federal student loan borrowers. Refinancing is another commonly used strategy, especially with the current low rate environment. This tool could lower your monthly payment or overall cost of your loan. Discuss your options with your lender to see if this option may be right for you. To stay motivated, remind yourself of the extra funds you’ll have to put toward your other savings goals once you’ve paid off a debt. Try to avoid taking on any unnecessary new debt as you pay down existing balances.
4. Create a savings plan
It can be hard to think about saving when you’re starting your post college-life and facing new expenses for the first time. But getting into the habit of setting aside a portion of your income each month, no matter how small, will help you reach your goals sooner.
Determine what percentage of your income you can comfortably put toward your savings goals each month. Then open a dedicated savings account and set up monthly automatic transfers from your checking account.
Setting priorities can help make saving more manageable. Two top priorities for many people should be creating an emergency fund and starting a retirement nest egg. For example, you could start with a goal of saving $500 in an emergency fund. Having this money set aside can give you peace of mind and prevent you from having to use a credit card to pay for an unexpected bill, like a car repair.
Even though your retirement may be decades away, consider setting up an individual IRA or contributing to your employer’s plan. Starting to save for retirement now not only gets you into the habit of saving, but it also lets you take advantage of compound interest, and any employer match, which will help your money grow faster over time. Even contributing $25 a month toward your retirement now can make a valuable impact. And you can gradually increase your contributions as your income grows.
5. Build a strong credit history
A good credit score is the key to obtaining better interest rates and loan terms for future borrowing needs, like a mortgage or a car loan. To build and keep a strong credit score, pay your bills on time, try to keep any credit card balances less than 30% of your available credit and check your credit report regularly. You can also access free copies of your credit report.
6. Maximize your employer benefits
Take advantage of any employer-paid perks like a company-sponsored retirement plan. If your employer matches a percentage of your contribution, that’s free money! You may be eligible for other employer perks, too, like company-paid health insurance and life insurance, wellness programs or gym memberships.
Keep working toward your professional goals as you plan for your financial future
Keeping your career development moving forward during remote work and virtual meetings can be a challenge. But in today’s competitive job market and uncertain economy, it’s important to spotlight your skills that are of interest to employers. Consider having a friend look over and proofread your resume or cover letter to make sure it’s the best it can be. It’s also a good idea to stay connected to your industry by looking for networking opportunities, expanding your skillset or finding a mentor or other resources that can support you and help keep you moving forward with your career and financial goals.
Mastering financial habits now can put you more in control of your financial life, so you’re better prepared to take advantage of new opportunities and reach your goals. Commerce Bank is here to help you plan for your financial future. Learn more about tools and resources we offer to help you succeed.