Top 7 financial tips for recent graduates

Transferring from school to working life can seem daunting enough without having to think about all the other responsibilities that come with it. But do not stress – here are our top tips for managing your finances after graduation.

Important takeaways

  • Take the time to understand the personality and patterns of your money to anticipate your spending and find out how to save.
  • Make and stick to a budget so that you are not surprised at the end of the month.
  • Practice small, good habits like checking your bank account balance and creditworthiness often, paying regularly off your creditint-card and make regular repayments of loans.
  • Understand what types of student loans you have and make a plan to repay them.
  • Make a plan to save money, consider short-term and long-term goals, and learn about different ways to increase your money over time.
  • Know (and advocate) your value in negotiating salary offers and salary increases throughout your career.
  • Understand all the health insurance plans that you may have through your parents or employers and get the most out of them.

1. Understand your money patterns

Before you start on this new phase of life, it may be a good idea to take a moment to reflect on where you come from and where you would like to go. Understanding your past expenses and savings habits is a good first step to being able to navigate in this time of great economic change.

Maybe you have a tendency to spend more than you would like in social situations, like when you are out with friends. Maybe you reward yourself after stressful situations by shopping online or ordering dinner. Maybe you have a tendency not to spend a lot of money at all, and you faithfully track your transactions and see your account balance as a hawk.

None of these are good or bad things, in themselves – they are just preferences and habits that people develop around money and spending. But more self-awareness is never a bad thing, so taking the time to think about and identify your money personality can be helpful in anticipating your spending patterns and, if necessary, changing them to suit your current financial situation.

2. Make (and stick to) a budget

A budget is simply a plan for your money, and when it comes to money, it is best not to wing it. This does not mean that you can never be spontaneous, and it does not have to be perfect, but you should know approximately how much money goes into your accounts compared to how much money comes out. That way, you will not spend more than you would like, or incur unnecessary debt by spending money that you may not have.

There are many different methods of budgeting, but basically they all help to find out the answer to this question: what are your financial efforts and what are your financial results? In other words, how much do you earn and how much do you spend? Once you are organized, you will be better able to predict what your finances will look like on a given day.

Use this free budget calculator, take a look at some apps and software, or try the simple 50/30/20 rule to create a budget. You can also split things up in the short and long term to help with big expenses and financial goals. A good first step is to make a list of your recurring bills and their payment deadlines and to keep everything in one place, whether it is to collect paper invoices in a folder or to have all e-invoices sent to a dedicated e-mail address.

Make a savings plan

One way to think about saving is to describe it as paying yourself first: your future self, your holiday self, yourself in an emergency – you name it. It is good to incorporate savings planning into your budget by regularly allocating a portion of your income, but you can also do a quick exercise at any time to assess your current finances and make a plan to save money.

Another way of thinking about saving is to divide it into short-term and long-term goals. Short-term savings can focus on things like going on vacation or building up an emergency fund should you lose your job, experience a medical emergency or have to pay an unforeseen expense. Long-term savings goals can be to buy a home or plan for retirement.

However, saving is not just about saving money. You can also take advantage of different types of savings accounts that help you save on taxes, such as an individual pension account (IRA) or a 401 (k). Many employers will even match contributions to pension accounts, which provides a great incentive to save. As the Internal Revenue Service (IRS) puts it, “You may be moving away from free money by not contributing to your employer-sponsored retirement plan.”

Another way to save is to invest, so that your money grows over time. Maybe you’ve heard buzz and discussion about memes like GameStop Corp. (GME) or AMC Entertainment Holdings Inc. (AMC), and while the excitement they generate can be tempting to be a part of, it’s best to start slowly and steadily with something like an ETF or a mutual fund. If you are eager to jump right in and find out about the stock market, try a simulator tool so that your real, hard-earned money or future financial well-being is not at stake.

4. Repay your student loans

Another major priority after graduation should be to pay off your loans. Most student loans give the borrower a six-month deferral after graduation before they have to start repaying their loans.

Make sure you understand how much you owe, what types of student loans you have (federal vs. private), whether they are subsidized or unsubsidized, and what repayment options are available to you. Then make a plan to pay it back. Tools such as the Ministry of Education’s student loan calculator can be useful resources.

Your payment plan, as well as your budget, can be flexible and should be evaluated based on your current and future financial priorities and situation. For example, you may have a high-paying job in line after you finish school, or you may plan to study further at some point in the future. These two different situations would probably result in different decisions regarding the duration and frequency of the repayment amounts and the method of repaying them.

When considering your payment plan, it is also worth finding out if you can deduct some of your student loan interest payments on your federal tax return, if it may be beneficial to consolidate or refinance your loans, or if you can consider postponing the loan.

5. Job hunting: Find out your value

When applying for a job or before accepting a job offer, be sure to research the typical market salary for your position so that you know what your experience is worth and what a reasonable (or even better, a generous) offer looks like.

It is also important to read about the benefits offered by the companies you apply to and weigh them against the salary offer. This includes things like health insurance, pension plans, employee benefits and paid leave. In some cases, it may be worth accepting a slightly lower salary if it comes with better benefits, depending on your situation. If it is not possible to negotiate your salary, there may also be other benefits that you can negotiate as part of an offer. For example, some companies offer student loan assistance to attract potential employees.

Try to create budgets around different net salaries (this can simply be a spreadsheet with a couple of different columns) to understand what a typical month with a certain income level might look and feel like for you. Even if a certain salary is not realistic at the moment, it can be a motivating thing to work towards in your career, and a reminder to ask for a well-deserved salary increase or negotiate your salary if and when possible.

6. Understand your health insurance

Finally, make sure you understand all the health insurance plans that you may have. If you are under 26 years of age and your parents have private health insurance, you can be covered as a relative until you turn 26 years old. If you have insurance through your employer, make sure you read through it to understand your health benefits and use them as much as possible – think of it as leaving money on the table if you do not.

If you are young and healthy and do not go to the doctor often, you can benefit from choosing a health plan with a high deductible, as these will not cost as much when it comes to your salary and you will not spend much on doctor visits. You would want a low deductible if you go to the doctor often, as it would save money during the year even if it costs more per paycheck.

7. Practice small, good habits

Many good financial habits can be seen as flossing: small tasks that, when done regularly, can have a major preventative effect on your (in this case financial) health. These are things like:

  • Check your bank account balance regularly
  • Knowing your credit rating and checking it regularly
  • Pay off your credit card (s) as often as possible, in the highest possible amount
  • Make regular repayments of debts or loans, as applicable

The first two can help you gain insight into your spending patterns as well as help prevent or identify identity theft if you discover any unusual transactions. The latter two will help your credit rating as well as your overall financial well-being in the short and long term.

How can you save money as a recent graduate?

Your first priority should be to create an emergency fund. Also, take advantage of employer-sponsored retirement savings plans such as a 401 (k) if possible. Pay off high-interest debt, such as credit card debt, as soon as possible, and make a plan to repay your student loans.

How to make a budget?

There are many different ways of budgeting, but they are all about calculating your total income, subtracting your total expenses and making a plan for all that is left over (or figuring out what expenses can be eliminated to save more). Try using a budget calculator, app or the 50/30/20 rule.

How can you pay off student loans?

First, make sure you know the total amount you owe, the type of loan you have (federal vs. private) and your repayment options. Think about your current and potential future financial situation when making a payment plan and examine whether it would be beneficial to consolidate or even postpone.

The points

While it may seem daunting to move on to life after high school, it’s actually quite manageable to manage your finances, repay your student loans and understand the expectations of your first job if you come in equipped with as much knowledge as possible. Having a plan and learning as much as possible about these new challenges will make this transition much smoother.

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