Graduating from high school or college is a big deal. It’s a point in your life where you embark on a new journey that carries more responsibility and begin taking actions that determine your future. Becoming financially responsible is one of the new challenges you’ll face and it will be important to your success for the rest of your life. You will need to learn how to handle your money, build a healthy credit history from the start and hit the ground running in your new career. Start life on the right foot by becoming financially responsible with these 9 financial tips after graduation.
1. Think Long and Hard Before Using Credit Cards
Young adults are the largest population targeted by credit card companies. They prey on young college students who are broke and in need of money fast. There are often promotions thrown in with the application of a new card, such as a free gas card or other gift certificates that lure students in. Credit cards may seem intriguing at first, but are one of the quickest ways to get yourself in a lot of debt without even realizing it. Although there usually is a 0% APR promotional period, the interest rate quickly goes up after a few months, accruing even more debt on all the unpaid debt on your card.
If you do want a credit card you should get one with the intention that it will either be used for emergencies only or that you will keep a card with a low credit limit and get into the habit of making small purchases and then paying them off in full each month.
2. Student Loans: Borrow Only What You Need
Many college students graduate with a heap of student loan debt. While student loans are an excellent way to pay for higher education and school supplies, it can also be a tempting way to use a little extra cash for things like partying and eating out. If you are a high school graduate, do yourself a favor and only borrow as much student loan money that you absolutely need. Acceptable needs include tuition, books and supplies and housing. If you stick to student loans for the real school necessities, you will be grateful you did so after graduation. You still may have a lot of debt to repay, but at least you know it didn’t go to waste and you won’t be paying for that keg party until you’re 40 years old.
3. Repaying Student Loans
If you are a college graduate and now have student loans to repay, you will more than likely have a 6 month grace period from the time of graduation to start the repayment process. With a difficult job market it can take some time to find suitable work so that you can begin making those payments, but don’t fret. There are programs in place that can help minimize the burden of repaying student loans if you’re out of work. Also, many lenders offer to lower your interest rate if you make timely payments and utilize the automatic bill payment option.
Certain professions, such as teaching and others in non-profit agencies can sometimes apply to have a portion of their student loans forgiven. Find out if your student loan center participates in any incentive programs you can take advantage of to make loan repayment easier.
4. Take Care of Your Taxes
Young adults may be getting jobs for the first time and are unaware of how important taxes are. Many think they can get away with not filing for their taxes and reporting their earnings for the year simply because they didn’t make much. This can really get you in a lot of trouble in the long run and cost you money. Do yourself a favor and begin learning about taxes as soon as you can. Learn what documents to keep, how to adjust your tax withholding, and be aware of the tax filing deadline.
5. Set up an Emergency Fund
Young adults typically have the benefit of not being burdened by a ton of debt or financial responsibilities, but this changes rapidly once you set out on your own. Start now by setting up an emergency fund. Cars need repairs, accidents happen, and if you lose your job you’ll still have bills to pay. Open up a high-interest savings account and put aside 5-10% of every paycheck. It might not seem like a big deal now, but when you’re faced with even a small financial crisis in the future you’ll be glad you put a little money aside for this very reason.
6. Establish Good Credit
Whether you like it or not, your credit history will be following you around for the rest of your life. Things like paying rent on time, paying your car payment on time and even having a few credit cards can all result in a good credit history. As good as those things are, just missing a single payment can be a black eye on your credit history for up to seven years. Earlier we mentioned being wary of credit cards, which isn’t the same as not getting one all together. If you are absolutely sure you are financially responsible, using a credit card can be an excellent way to establish credit for the first time. You can use it only in emergency situations or on certain purchases such as paying for gas, but always pay your bill on time and you’ll have the makings of a solid credit history.
You may not think a credit score or your credit history is all that important until it comes time to find a mortgage or something which may be many years down the road, but times are changing. Now, even some employers are basing who they hire partially on credit history! And don’t forget, even when renting an apartment or getting a cell phone is going to run a credit check and a poor score may prevent you from getting either or at the very least require a larger deposit than you’d have to pay otherwise.
7. Keep track of your finances
You may be thinking that after graduation you will find a great job that will pay a lot of money and everything will just fall into place. You’ll make enough money that the idea of budgeting seems unimportant. Wrong. You can live paycheck to paycheck on a six-figure income as easily as you can on minimum wage. It’s all about being aware of where you are spending your money and how much you are spending. It is OK to treat yourself once in awhile to a fun time, but you should be budgeting that into your finances so you know exactly what you can afford.
8. Take Care of Your Health
While this might not seem like a major financial concern on the surface, it’s actually a big one. Paying for health related issues is one of the largest expenses for most Americans, especially those without health insurance. Choose healthy foods, exercise regularly and see the doctor and dentist on a regular basis. If you are no longer covered under your parent’s health insurance you’ll want to investigate your own coverage. Insurance can be expensive, but not having insurance at all when you end up needing expensive treatment can literally push you to bankruptcy.
9. Invest Some Money
Hopefully you took the advice above about putting a little money aside for an emergency fund, but the saving doesn’t stop there. You need to start preparing for the future and for most of us that means retirement. It may seem like it’s still an eternity away, but time is one of your greatest investment tools. Compound interest is nothing short of magic but the key is giving it enough time to work. Even if you can’t afford to save and invest much, just save something. If your new job has a 401(k) available you should take part in that, but at the very least you’ll want to open an IRA at a place like TradeKing and tuck a little money away for your eventual retirement. You’ll be thanking yourself in 40 years because you’re mistaken if you think Social Security benefits will be enough to live on, if you receive any benefits at all!
This is an exciting time of life for a young adult and there’s a lot to think about. As a young adult, now is the best time to take charge of your financial future. Take care of yourself and your finances now as to avoid complications in the future. Remember, the decisions you make with your money at 20 may provide tremendous wealth in the decades to come, or they may haunt you for the rest of your life. It’s up to you to make the right choices.
Author: Jeremy Vohwinkle
My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.
Great article. I'm starting a 26-part blog/vlog series on this topic (Financial Planning for the Recent Graduate). Check it out if you're interested:
Check out the new book From Piggybank to Portfolio: A Financial Roadmap for New Investors. It's easy to read and provides a great overview of saving and investing aimed specifically at students and young adults in their 20s and 30s.
How about taking the time to learn more about personal finance? Never a bad idea to continue learning...
yupfin.com gen-y's financial plan
Excellent post. I couldn't agree more with #1 - "think long and hard about using credit cards."
Those are definitely words to live by. If you're a college grad and are looking for ways to conveniently make purchases but not use credit cards or a bank account, prepaid cards are an excellent way to make purchases wherever visa/mastercard are accepted, as well as budget/just use the funds you have.
My biggest mistake was failing to create an emergency fund. Several times unexpected car repair bills had to be put on credit cards. Ugh. My second biggest mistake was failing to budget or rein in my impulse spending. My third biggest mistake was failing to belive I could own a home, or thinking that I wanted a single-family house instead of a condo. If I had believed I could own a home, and come around sooner to the idea of owning a condo, I may have been able to buy before the boom, but as it is things have turned out well on the homefront. I still bought near the peak, but I don't plan on selling anytime soon.
That is the mistake that I made because I borrowed more money then I needed. Then again, it helped me pay the bills
Great information here. If you don't have insurance, for minor care, you can use several free prescription drug discount cards out there. http://www.ufindlinks.com/PharmacyDiscounts.html I have used them, and got almost 50% off your regular price at CVS (They can be used at most of the regular pharmacies). This would help not only new graduates, for anyone without insurance.
The tips are great. Grads can learn about insurance that is design to protect not only their health but also their electronics / personal property at www.GradGuard.com. Most graduates can protect their savings and even earning potential by having a simple renters insurance program like www.collegerentersinsurance.com It would be sad to spend the higher earnings from a college degree just to overcome the liability that comes from someone getting hurt at a party at your house or an expensive emergency room weekend. For medical insurance consider the affordable alternatives at www.GradGuard.com/medical
Honestly at this rate, it might be more than a year before a college graduate can find a job. A lot of times college kids do not have savings as all their money goes to school so if you have to travel to go to job interviews across the country and just living expenses, you'll end up owing more than you'd hope for.