5 personal finance tips for new college graduates (2022)
First thing’s first: if you just graduated or are about to, we want to say congratulations!
Not only have you made it through one of the most academically rigorous experiences of your life, you’ve managed to do it during a full-ass pandemic. That alone deserves a round of applause.
Now that you’re about to enter the “real world,” though, you’ve probably got a lot of questions about what it means to be a good steward of your money.
While this past year has thrown several wrenches into the typically post-grad plan (hello, recession!), several tried-and-true pieces of advice will help any graduate start their financial journey off strong. Let’s dive into some of our top money tips for new college graduates.
Key personal finance tips for new college graduates
1. Establish an emergency fund & make a budget ASAP
You’ve probably heard that you need an emergency fund in case anything happens, and you need a quick financial safety net. Building this safety net should be your top priority after you graduate and nab that first job.
Life happens, and if you need to pay a surprise medical bill or replace your car’s tires, you’ll want to have a few thousand dollars on hand. Aim to stow away 3-6 months of your annual income in an FDIC-insured bank or money market account if you can.
Even if your starting income is relatively low, it’s still a great habit to get into. $10 a week adds up, and building the habit will help you save more in the future. A great way to see just how much you can save each month is to create a budget.
Most people have no clue how much money they actually spend in a month, but you can by tracking your spending and making a budget.
Add up everything – rent, utilities, cell phone bill, food, entertainment, etc. Treat this budget like you’re spending plan, and try to stick within it if you want to start building up savings.
And don’t just spend less to save more; that will only lead to impulse buying. Instead, spend wisely so you’ll have more room to save.
2. Don’t ignore your credit score
File this one under “things they didn’t teach us in school”. Okay, so you know you should have a good credit score, but how do you get there? And what does a credit score even mean? Let’s break it down:
Your credit score is a number between 300 and 850. Basically, it shows lenders (like banks) how “creditworthy” you are (how risky you are if you want to take out a loan, mortgage, etc.). The higher the number, the better.
Many things can impact your score, like how many credit card accounts you have open and if you miss payments.
The easiest way to watch your credit score climb is to only borrow what you know you can pay back by the due date (or earlier). The better your credit score is now, the easier it will be to apply for mortgages and car loans later.
If you’re looking for an easy way to monitor your credit score, we recommend looking into your bank’s offerings or using a service like Credit Karma.
Remember these are reference points and your score will vary across platforms (sometimes dramatically).
3. Get out of the “new is better” mindset
One of the most important personal finance tips for new college graduates is also one that we don’t talk about enough.
So often we can get trapped in this mindset that we need the newest car, computer, shoes, etc. The thing is though, the satisfaction those new items bring is fleeting, but the debt isn’t.
One of the quickest ways to get on track toward better savings is to shift this mindset.
Instead of buying a new car, for example, stick with what you have, or buy used. Become more frugal and shop for clothes secondhand, and use platforms like Facebook Marketplace to help you find things like furniture, books, and video games for much lower prices.
4. Understand your retirement options
There’s so much on your plate right after graduating that setting up a retirement fund can often take the backseat on your list of financial priorities.
The thing is, though, the earlier you can start contributing to your retirement, the better.
If you’re lucky enough to have access to an employer-sponsored program, take advantage of it. If you can put away 10-15% of your paycheck each month into that account, great!
If you don’t have an employer-sponsored plan, you can still contribute to your retirement. You’ll want to open up an individual retirement account (IRA) to get started.
It’s also important to understand how to pick the right investments. While we could write another whole blog on the topic, the key is to pick investment funds that offer the right mix of risk and reward.
With the power of compound interest and the right investment strategy, your initial savings could be worth millions once you reach retirement age!
5. Make a plan to pay off debt
Debt: most of us have it, none of us want it. So how do you make a game plan to get rid of it?
First thing’s first: figure out exactly how much debt you’re carrying around.
Get the big picture, then use your budget to map out how much you can pay off each month. Focus on paying back debt with the highest interest rates first, like student loans.
The faster you can pay these debts off, the less interest you’ll end up accruing (and have to pay).
If you’re looking to stop yourself from adding more debt to your list, make a habit of paying for things with cash or your debit card, that way you’re not accruing more credit card debt.
Learning how to take control of your personal finances can seem daunting, but with the right tools and knowledge under your belt, you can empower yourself to make the best money decisions for your life and goals.
We hope these personal finance tips for new college graduates help give you the boost you need to get – and stay – on track.