Graduating from college is one of the greatest milestones anyone will achieve. Earning your college diploma marks a turning point where your life as a student ends and you are finally ready to enter the workforce. It means it’s time to step out on your own as a self-sufficient adult, making your own salary and paying your own bills. It also means it’s time to start seriously thinking about financial planning.
Unfortunately, today’s college graduates are less prepared to be on their own. The truth is that it takes an average of six months to find meaningful work after graduation. Only 14% of millennials are able to live on their own or with roommates, and more than 32% of millennials live at home with Mom and Dad. Even after their adult children move out of the house, two-thirds of parents have helped them financially over the past five years.
As the cost of living continues to increase and the rising cost of college leaves more graduates carrying unprecedented levels of student loan debt (157% cumulative growth over the past 11 years), it’s harder than ever for new college grads to become financially independent. Another challenge is a lack of financial literacy. Because parents continue to help their children financially into their 30s, it has become harder for grads to take charge of their own finances.
Here are some financial tips that every recent college graduate should consider:
- Create a budget. One of the quickest ways to get a financial education is by trying to figure out how much you need to earn to pay your bills. Most college graduates have never had to track their spending before. Even before you find a full-time job, you need to calculate your living costs, including rent, groceries, transportation, entertainment, and—of course—student loan payments. Even if you are living at home, a budget creates a baseline that helps you determine what will be required to cut the financial cord with Mom and Dad.
- Build your credit. Your 20s are when you start to build credit, so develop practices that will boost your credit score. Pay your bills on time, including your student loans. Consider adding a credit card to your finances, but be sure you pay it off each month to build your credit.
- Start saving for retirement. Retirement savings are the last thing most recent graduates are considering; however, most economic experts agree that you should start saving for retirement as soon as you start earning a paycheck. Be sure to contribute to a 401(k) retirement program through work, and consider investing in an individual retirement account (IRA). Those who learn to start their retirement savings early are the ones who will have enough saved to truly retire when the time comes.
- Open a savings account. You should try to put between 20-25% of your paycheck into savings. Your goal is to avoid living paycheck to paycheck, and regular contributions to savings are a good way to start. Some millennials decide to wait until their 30s, when they settle down and have two incomes and a family, before they start saving, but saving for the future is a good habit everyone should practice early. Why not start saving now for big purchases you may want to make in the future, such as a new car or even a new home?
- Learn how to use a checking account. More millennials are managing their finances without ever writing a check. However, you still need a checking account. Even with online payment services and credit cards, you still need a ready source of cash to pay your bills. Checking accounts are the easiest tool to access money when you need it using either online services such as PayPal or an ATM. You should look for a checking account that pays interest as an added savings tool, or find a checking account that automatically adds money to your savings.
- Start investing. The longer you have to invest your money, the more it will grow. Remember that profitable investing is a long game, and it’s easier to take financial risks in your 20s than in your 50s. Work with a trustworthy investment counselor and develop a diversified portfolio that balances risk against returns. Even maintaining a small portfolio will help you understand the potential of investing wisely as part of a retirement strategy.
- Find cheaper ways to have fun. Your 20s are a time when you want to kick back and have fun with friends, and that often means eating out, spending money on activities, and even traveling. You should be sure to control your spending on fun as part of your budget. Find ways to conserve, such as learning to cook for friends, taking advantage of deals like happy hour, and finding free things to do near you.
As soon as you graduate from college, it’s time to start planning for a financially stable future. By applying a few simple financial tips, you can start managing your money, reducing student loan debt, and building your nest egg. Taking the right financial steps when you graduate will put you well ahead of your peers.