The transition from being a student to a graduate is a challenging one. Whether or not you find a job, handling finances can be overwhelming and stressful. You will need to budget for rent and bills, start saving, and might have to pay off student loans.
The most optimal way to deal with this change is to establish healthy financial habits early on. In this article, we will offer some steps and tips on how you can set yourself up for a stable financial future.
1. Understand How You Spend Money
When you are financially independent, it can be tempting to spend money without a second thought. At least initially. After all, now there is no one to tell you you can’t buy that expensive item or order food every day. However, it won’t be long before you face the consequences.
On the other hand, you might not spend money at all. Your only expenses in college might have been hiring paper writer for academics and buying groceries. There is nothing wrong with either way of living. Regardless, you need to be self-aware of your spending habits. You can do this by tracking all your expenses. This way, you can change your patterns based on your current financial situation.
2. Make a Budget and Stick to It
The next step is to create a budget for your expenses. That isn’t to say you shouldn’t make any spontaneous expenses, but rather, you should have an idea of the amount of money coming in and out.
There are many ways to budget your spending. And today, many mobile apps are also well-equipped to provide you with a personalized budgeting plan suited to your needs. These apps can also help track your bills, subscriptions, and other recurring payments.
And if you don’t want to complicate things, you can also try following the simple 50/30/20 rule. In this method, you will use 50% of your income to cater to your basic expenses, 30% to your wants, such as shopping or weekend trips, and 20% will be set aside for savings.
3. Work Out A Repayment Plan for Your Student Loan
Another big responsibility for fresh graduates is to deal with student loans. Usually, most student loans give borrowers a six-month grace period. You should first understand the key terms of your loan, such as:
- The amount you owe,
- The type of loan – federal or private,
- Whether the loan is subsidized or unsubsidized,
- And the repayment options.
When working out a repayment plan, you will also have to consider your future. For instance, are you planning to pursue higher studies, or do you already have a job lined up?
It’s also wise to consider taking another loan to repay student loans. This will work if the new loan has a lower interest rate or more flexible repayment terms.
4. Set Up Emergency Savings
All fresh graduates should start putting money into an emergency fund as soon as possible. It may seem unnecessary precaution, but this can back up against unexpected events. If the COVID-19 pandemic has taught us anything, it’s to be prepared at all times.
Typically, a good guideline is to have enough funds to cover basic expenses for a period of three to six months. This includes rent, food, and other loan payments. It’s important to save the emergency fund in a liquid form that is easily accessible when needed.
5. Figure Out Health Insurance
Another important aspect is to sort out health insurance. If you are under the age of 26, you can be covered by your parent’s insurance plan. Alternatively, if you have a job, your employer should offer one as part of work benefits. In this case, make sure you understand all terms and conditions and use it to your advantage. And lastly, don’t hesitate to ask the person responsible for that – it’s their duty to inform you of all the perks.
If you have any recurring health issues, you would want a low deductible plan, especially if you go to the doctor often. This can help save money over the course.
6. Be Careful With Credit
You need a good credit score to secure loans in the future, whether it is to buy a house or a vehicle. One way to work up a good credit score is with a credit card. Look for banks that offer low-interest rates and fees. Companies that provide rewards such as cashback or flight miles can also be a bonus.
And when opening a card, pay your balance in full each month. This will help avoid your interest charges. If not, you will end up hurting your credit. Moreover, avoid applying for multiple cards at once. This can hurt your credit score.
7. Invest in a Retirement Plan
College grads who start working should take advantage of employer-sponsored retirement plans. With most companies, this will be a 401(k). These plans help save you money while compounding the interest over time. If you don’t have a job or are working as a student freelancer, you can opt for an individual retirement account.
There are many regulated brokers that offer Traditional and ROTH IRAs. With Traditional IRAs, the interest is accrued on a tax-deferred basis. You will be taxed only after you start withdrawing money for retirement. With Roth IRAs, you can fund your retirement via non-tax-deductible contributions. Earnings add up on a tax-free basis, and you can withdraw money at retirement without any additional tax burden.
It is crucial to research thoroughly about retirement plans. You will have to use all your academic research skills you gained in college and find the right broker that can offer you the best deal.
All this might sound too daunting at first. However, organizing your finances and managing your financial expectations can make it easier for you to plan your future. As you move through life, you might think that you should have set up a proper financial plan years before. And the first step is to educate yourself. This will help make the transition to financial freedom much smoother.