Practical Steps Recent Graduates Can Take to Secure Their Financial Future
College graduation is a major milestone. This is a critical point in time for young adults just entering the real world. The steps college graduates take right after college can make or break their financial futures. These are some practice steps recent graduates can take to ensure financial success.
Make a budget
This will be the first time for many college graduates to manage income from a full-time job. Creating a budget will ensure you’re using your income effectively. A budget doesn’t mean you can’t spend money, it’s a plan for how you’re going to spend. Creating a budget ensures you can accomplish all your financial goals for the month. Building a habit of budgeting and practicing financial discipline is a skill that will benefit you for the rest of your life.
Prepare for student loan payments
College students have a six-month grace period before student loan payments begin. This gives you a chance to secure a job and get used to managing your money. You can contact your student loan lender before payments begin to discuss repayment options. Most lenders offer a few repayment plans that you can choose from based on what you can afford. Once you know how much you’re going to pay, it can be helpful to start setting it aside even before your student loan payments begin. That way, it’s not such a shock to your budget when you actually do start repaying your loans.
Get health insurance
This is probably the first time in your life that you have to be responsible for health insurance. While you may be tempted to avoid the additional expense so you can have more money in your paycheck, going without health insurance is risky. You’re in the prime of your life physically, but that doesn’t mean you can’t get sick or injured.
Without health insurance, you’re financially responsible for all your medical bills, which can be thousands of dollars. Medical debt is the biggest cause of bankruptcy in the United States. Don’t let an unexpected injury ruin your future, especially if your employer offers a comprehensive health insurance plan.
Start building an emergency fund
You’ll be able to predict most of your monthly expenses. However, there will be unexpected expenses from time to time. For example, you may have to pay a car insurance deductible, a medical bill, or a car repair. You may not be able to cover these from a single paycheck and relying on a credit card can be risky. This is why an emergency fund is important and it can help you when you’re faced with the unexpected. It takes time to build up a sizable emergency fund, which is why you should start early. The ideal emergency fund is three to six months of living expenses, which will cover you in case you suffer a loss of income.
Wait on major purchases
You may be tempted to buy a house or car right out of college, but it’s typically better to wait to make these purchases. Both a mortgage and auto loan are two major loans that will take a large portion of your paycheck. When you’ve just graduated college, it’s better to get used to budgeting, saving, and preparing for student loans. Spend a little time getting settled in your career, build up your credit, and save up a good down payment before taking on a car note or mortgage.
Start saving for retirement
At this point in your life, retirement seems so far away and that’s exactly why it’s better you start saving for retirement now. The earlier you start saving, the more time your money has to grow, and the more money you’ll have once you’re ready to retire. Some people have even been able to retire early because they started saving early and were smart with their retirement savings.
If your employer has a retirement plan that matches contributions, you should take advantage of it. It’s almost like your employer is giving you free money. Keep in mind, that you’ll have to stay at your job for three to five years to become vested and earn the ability to keep your employer-matched contributions even after you’ve left your job.
Begin building credit
A solid credit history will play a major role in your financial success. Once you start repaying your student loans, they’ll help you build good credit as long as you make your monthly payments on time. You might also consider opening a credit card to boost your credit score.
Be careful when using credit cards, since it’s fairly easy to get into credit card debt. It’s best to start with just one credit card, change only a small amount on it each month, and always pay your balance in full. If you stick to these rules, you’ll build a good credit history and avoid getting into credit card debt.