This past Spring, the graduation caps of millions of students’ soared into the sky. The excitement of a new chapter full of opportunities was just beginning to set in. Now, a couple of months later, a stark reality has emerged: managing finances as a recent college graduate can be challenging.
According to reports from organizations like the Federal Reserve and Institute for College Access & Success, nearly 70% of graduates leave college with student loan debt averaging over $30,000. That, combined with job markets shifting and living costs rising, can make navigating this landscape difficult.
Now is an essential time to establish good financial habits, as you transition from a college student into the workforce. Here are five financial hacks that can help you, a recent graduate, set a solid foundation for the future.
1. Create a Budget
As a recent college graduate, your income might be different from what you expected. Whether you’re just starting your first job or juggling multiple gigs, understanding exactly where your money goes is crucial.
Begin creating a budget by listing all of your income sources, including your salary, side hustles, or any freelance work. Then, categorize your expenses into fixed costs – like rent, utilities, and insurance – variable costs – like groceries, dining out, and entertainment – and savings. From here, budgeting tools or apps to track your spending and identify patterns can help improve your budgeting.
A clear budget not only helps you live within your means but also allows you to allocate funds for savings and future goals, such as traveling or buying a car. The goal here is to be proactive.
Related: 8 Tips for Saving Money on a Tight Budget
2. Build an Emergency Fund
Because life is unpredictable, building an emergency fund comes highly recommended. However, this stage of life is even more unpredictable – a major unexpected expense arising during the transition from college to the workforce can cause serious financial consequences. An emergency fund acts as a safety net, providing you with peace of mind when a car repair, medical bill, or something similar comes up.
Aim to save at least three to six months’ worth of living expenses. Consider opening a separate savings account specifically for your emergency fund. Automate transfers each month, so you’re consistently contributing without even thinking about it. Setting aside $50 or $100 a month can add up over time. This safety net will help you manage unexpected expenses without derailing your finances.
3. Take Advantage of Employer Benefits
As you step into the workforce, don’t overlook the value of your employer’s benefits package. Many companies offer perks that can significantly enhance your financial situation. For example, if your employer provides a 401(k) plan with matching contributions, make it a priority to contribute enough to receive the full match, as it will boost your retirement savings.
It’s worthwhile to explore other benefits that might be available, such as health insurance, life insurance, tuition reimbursement for further education, and so on.
Understanding these benefits can enhance your overall compensation package and reduce your out-of-pocket expenses, setting you up for financial success in both the short- and long-term.
4. Pay Off High-Interest Debt First
At this point in your life, you might find yourself facing student loans and/or credit card debt. But high-interest debt should be addressed, as it can quickly spiral out of control, eating away at your income and limiting your ability to save.
One strategy to dig your way out of debt is the avalanche method, where you focus on paying off debts with the highest interest rates first, or the snowball method, where you pay off smaller debts first for motivation. Either way, create a debt repayment plan that’s right for you. For example, if you can allocate an extra $100 each month towards your debt, that can significantly reduce your total interest paid over time.
Reducing your debt not only saves you money, but it also improves your credit score, which is crucial for future purchases.
Related: How to Build Student Loans Into Your Budget
5. Start Investing Early
Investing might seem daunting, especially if you’re still settling into your first job, but starting early can have a massive impact on your long-term wealth, due to the power of compounding – the earlier you invest, the more your money can grow over time.
Consider opening a brokerage account with low fees and start investing, even if it’s small amounts. A financial professional can work with you to provide personalized advice and education on how to get started.
Investing early not only prepares you for future financial goals, like buying a home or retiring, but also helps you develop a discipline.
Related: 5 Reasons Why Recent College Graduates May Need a Financial Advisor
Transitioning from college to the workforce can be overwhelming, but implementing these financial hacks can set you up for success. By creating a budget, building an emergency fund, leveraging employer benefits, managing debt, and starting to invest early, you can lay a strong foundation for your financial future.
Remember, the key to financial wellness is making informed decisions and staying proactive about your finances. Start today, and you’ll thank yourself later.
Bautis Financial LLC is a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.