With spring upon us, nearly 3 million college students are preparing to proudly accept their hard-earned college diplomas and storm the “real world.” With their ambition, ingenuity, and creativity, many of these graduates are bound for success and will truly make an impact for good on the world.
If you count yourself as one of these, congratulations! You will soon discover that life after college is full of opportunity for both professional and personal growth. First, though, let’s talk about what you need to know when it comes to managing your finances:
1. A budget is your buddy.
When you hear the word “budget,” maybe you shudder. Perhaps a budget sounds constraining. Actually, a budget can be your best buddy when it comes to living as a responsible adult. By deciding in advance where you will spend your hard-earned money, you create freedom for yourself by being in control. Many great budgeting apps are available, such as Mint and Wally.
2. We all have bad luck — build your emergency fund.
No matter how well you plan, the unexpected is inevitable-your dog gets sick, your car transmission fails, or you drop your iPhone into the river while taking a selfie. You need a pot of money set aside to cover emergencies so that you avoid using credit cards and going into debt. The rule of thumb is to keep 6 months of expenses in your emergency fund. If that seems daunting, start with 2-3 months and build from there.
3. Don’t ignore your student loans.
You may be graduating with student loan debt, and if so, you are not alone—nearly 70% of students will graduate this year with student debt. Check your original promissory note for your repayment terms, build your monthly loan payments into your budget, and stick to those payments. If you have multiple loans, consider consolidating the loans into one so you’ll have just one payment to make each month. You may be eligible for an income-based repayment plan which—not surprisingly—bases your payment on your income instead of requiring you to pay a fixed rate which may be disproportionate to your starting salary. Some companies even help their employees pay student loan debt, so ask your Human Resources department if any options exist.
4. It’s never too early to save for retirement.
I know what you’re thinking: you are only graduating from college and I’m talking about retirement YES! While your employer provides your paycheck today, one day you will need to pay yourself, and you absolutely cannot wait until then to figure it out. Most employers offer a 401(k) or other employer-sponsored retirement plans in which you can put away a percentage of each paycheck. Many employers also provide a matching contribution of 3-5% into the plan. Take advantage of this match by putting away an equivalent percentage—otherwise, you are leaving “free” money on the table.
5. Don’t skip renter’s insurance.
You will likely rent a place to live as you get started, and it’s important to protect yourself from theft, property damage (like a fire), or someone being hurt at your rental property. Renter’s insurance is the answer, and many people don’t realize how inexpensive it is. Let’s say someone breaks into your home and steals your new MacBook Pro. For an average cost of $12 a month for insurance (equivalent to a couple of your favorite fancy drinks at Starbucks), you could be compensated by the insurance company for your loss. It’s a trade-off worth making.
6. Appoint an advocate — sign a healthcare power of attorney.
No one likes to think about getting into a severe accident, but it can happen. If you become seriously hurt and are unable to make healthcare decisions for yourself, you will no doubt want someone who knows you well to make medical decisions on your behalf. If your parent isn’t the right person for you, choose another trusted adult, like an aunt, uncle or older sibling to serve as your healthcare power of attorney. Each state has its own form for designating an agent. You can easily find yours through an online search.
7. Knowledge is power — stay educated about your finances.
A plethora of advice is at your fingertips. LeamVest.com is one great resource with short blog posts on money, life, career, and debt. If you want to read more about building wealth, consider The Millionaire Next Door, by William D. Danko.
8. You’ve earned this — treat yourself.
You will likely work hard for your paycheck-maybe harder than you once thought! Don’t forget to do something special for yourself (within your budget). Perhaps it’s a yoga class, a gym membership, or a nice dinner out with friends at a new restaurant Whatever you choose, do so with gratitude for the money you have earned.
Leaving the safety and structure of college can be a bit daunting, but it’s also exciting. Allow managing your finances to be an experience that creates good habits, healthy decision making, and personal rewards. You get to be in control, and you will do great Good luck!