Congrats to all of the 2017 graduates! It is awesome to scroll down social media and see all of the beautiful family pictures. Now that you have walked across that stage it is time to welcome you to the real world. By real world, I mean the world of additional bills and responsibilities. Although personal finance is typically not taught in a traditional school setting, you are in luck. I have created this ultimate guide to money for recent college grads.
Differentiate Between Wants and Needs
The first step when considering money for recent college grads is to differentiate between wants and needs. I don’t know about you but when I was in college I had financial responsibilities but not many. My friends and I would regularly enjoy the nightlife in our city and purchase new outfits each weekend. Looking back on that time, I wasted so much money on alcohol and clothes. I definitely was focused on needs more than wants.
Take this time to really determine what thing you need and what things you want. I am not saying you can’t enjoy yourself and help yourself to some wants occasionally. The thing is you need to prioritize your needs from your wants.
Ignore the ‘Joneses’
Similarly to differentiating between wants and needs, it is super important to ignore the ‘Joneses.’ You know the saying, keeping up with the ‘Joneses.’ You may have friends that are buying new cars, furniture, and electronics. Although new shiny gadgets are nice, they aren’t always needed. While it is important to treat yourself, make sure you are treating yourself to things you actually need and are worth the cost.
For example, your car may be on its last leg. Prior to purchasing a new car, consider purchasing a slightly used car. New cars depreciate very quickly and after driving off the parking lot the car will be worth a lot less money. In addition, depending on your credit score t
Check your Credit Report
Credit is something I never considered until later in life. I mean, I assumed a paid a majority of my bills on time which would then translate to a high credit score. The thing is, I was assuming that I had a high credit score but I had never actually verified the score or seen my credit report. Plus, I didn’t realize how credit could affect my future. The information on your credit report and therefore your credit score can affect your ability to get a car, mortgage, and even a job!
When I actually went to check my credit report/credit score for the first time, it was a lot lower than I anticipated. For my full story, check out this post: How I Raised My Credit Score 150+ Points.
Personally, I like to check my credit report at annual credit report. Annualcreditreport.com is the only official site to receive your credit report per federal law. You can receive a copy of your credit report from each of the 3 major bureaus (Experian, Transunion, and Equifax) once every 12 months.
Related: Crash Course in your Credit Report
Negotiate your Salary Offer
According to Salary.com, 84% of employers expect applicants to negotiate their salaries. Although negotiating your salary can be a difficult conversation, it is worth it in the end. First, all an employer can either say yes or no. In fact, 74% of those who asked for an increase in salary with their initial offer, in fact, did receive that increase.
According to a study out of Temple and George Mason, a bump in pay of $5,000 by the time you are 25 could result in over $600,000 of additional lifetime earnings. Don’t be afraid to ask! Even if the employer is unable to increase your salary on the spot, there are other things the employer can do as an incentive. Some of those things include:
- Additional vacation days
- Increase in retirement contributions (as allowed per IRS limits)
- Telework/Work from home days
- Transportation stipend
Make a Budget
A budget is telling your money where to go so you aren’t wondering where it went. Making a budget is a super important part of the money for recent college grads. A budget is just outlining all of the income that you receive each month and subtracting all of your expenses.
You can make a budget the “old fashioned” way with a pen and paper or you can choose to use an automated app. Below are three of my favorite apps when creating a budget:
- Every Dollar
Mint.com is personally my favorite budgeting app. I love mint because you can link all of your financial accounts (bank accounts, loans, credit cards, retirement accounts, etc…) and the app will help you create a budget. In addition, you can look back at your spending from month to month. Using mint.com helped me save $400 on just food and alcohol alone because it helped to hold me accountable.
Start an Emergency Fund
An emergency fund is typically 3-6 months of income set aside for a financial emergency. Examples of financial emergencies include unexpected doctor visits, job loss, car failures and more. For some in college, an emergency fund may be family members, significant others, or friends. Now is the time to get your savings in check so that you have an emergency fund to lean on when a financial emergency arises.
The easiest way to start an emergency fund is to automate your saving account. Automatic your savings account can be done a variety of ways but below are a few of my favorites.
- Automatically transfer a set dollar amount from your checking to saving account each month.
- Use an app like Qapital to regularly move money from your bank account into a separate savings account. The benefit of an app like Qapital is that the money is out of site and, therefore, out of mind. Interested in trying Qapital for yourself? Check out this link for an automatic $5 added to your account. If you start an account, $5 will also be added to my account.
- Open up a savings account at a completely different bank than what you use for your main checking account. Automatically deposit part of your paycheck into the account at the separate bank. Ensure that you do not have a debit card or another way to easily access the money. Therefore, it will make it harder for you to touch said money.
Like many other steps in this guide to money for recent college grads, it is most important that you start taking steps not necessarily the size of the steps. For example, if you are only able to save $20 per paycheck then start there. Good habits now will follow you throughout the rest of your life.
Related: Steps to Starting an Emergency Fund
Save 10-25% of your Income
Congrats if you already have a sufficient emergency fund! Just because you have saved 3-6 months doesn’t mean that it is time to stop saving! The more you save the better off you will be in the long run. For example, what if your friends decide that they want to take a trip? You don’t want to dip into your emergency fund for the trip. You can use that additional money saved for other non-emergency expenses.
Even though you may have just graduated, in a few years you may want to purchase your first house or another large purchase. Or maybe you will decide to take a hiatus from work for a few months to travel the world. You must have money saved in order to truly have options. In order to subsidize your saving, you can save bonuses you receive at work or your tax refund.
Don’t Ignore Creditors
I used to hear so many millennials joke about ignoring calls from Sallie Mae, Navient or another student loan servicer. The thing is you are only hurting yourself by ignoring calls from creditors. Many times, especially with student loans, there are options like deferments and forbearances when you are unable to make payments.
Also, often times if you contact the creditors soon enough you can establish a payment plan in order to avoid the information from hitting your credit report.
Start Investing for Retirement
I know, I know, you just graduated and the last thing on your mind is retirement. It is probably 40 years away for many of you. The thing is it is estimated that millennials will need 1.8 million dollars in order to survive in retirement. That is a lot of money but it is not impossible to achieve if you start investing for retirement now.
You can even start small. The most important thing is that you start. Upon receiving your first job after college, find out if they offer a 401k or similar retirement plan. If so, find our if there is a matching program. At a minimum contribute to the 401k up to the match because it is free money! For example, let’s say your 401k plan matches dollar for dollar up to 3%.
- If you make $40,000 per year and contribute 3% to your 401k, that is $1200 over the course of the year.
- If your employer matches that 3% dollar for dollar, then they will add an additional $1200 to your 401k.
If you are a recent college grad or 20-something, you may enjoy these posts as well:
- 3 Apps to Invest with $5 or Less
- 4 Tips to Catch a Flight Deal
- 5 Credit Lessons I Wish Were Taught in School
- 8 SMART Financial Goals to Set in 2017
What additional information would you add to this guide to money for recent college grads?
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