Nearly 4 million students are expected to earn a college degree during the 2019-2020 academic year. On average, those college graduates will likely earn just over $50,000 annually after they graduate, and that’s usually substantially more than they bring in as income while still a student. As a result, shifting from college to the real world can be a bit of a shock and surprisingly tricky. If you want to make sure you handle the adjustment properly, here are five financial tips that can help you now.
1. Figure Out a Budget (and Live Below Your Means)
Whenever your income or expenses change dramatically, it’s wise to update your budget. Or, if you were a student without a formal budget, now is the perfect time to create your first one.
For many students, their first real-world salary feels larger than it is. Plus, there is a tendency to splurge or live far beyond one means, both of which can lead to financial hardship down the line.
If you want to make sure that lifestyle inflation doesn’t harm your finances, budgeting is a must. Review all of your expenses (including student loan payments that might be on the horizon) and account for them. Additionally, dedicate some money toward an emergency fund, saving for any upcoming large purchases, and retirement. Consider living as frugally as possible and sending more money than the minimum payment toward your student loans, allowing you to rid yourself of the debt faster.
By making smart choices today, you can make sure that you are saving for the future. Plus, by living within your means, you can avoid other forms of debt.
The easiest way to budget is with automated apps that tell you in real-time how you’re tracking. Empower is a favorite because all you need to do is sign up for Empower and take a couple of minutes to customize your budget categories and set weekly or monthly spend limits, then let Empower do the hard work of monitoring and tracking your expenses. Empower classifies every expense for you and shares a monthly report for real insight into where all your money is going. Empower will also proactively alert you when it’s time to rein in your spending so you’ll never go over.
2. Get Control of Your Credit
If you leave college and start living outside of your means, it’s easy for debt to get out of control. When this happens, your credit score can fall, making it hard to obtain credit in the future, leaving you with higher interest rates, and more.
Monitoring and improving your credit score now is a smart choice. That way, if you absolutely need to finance something (like a home), your score is in good shape.
Make sure you review each of your credit reports every year. At AnnualCreditReport.com, a government-supported site, you can do so for free, allowing you to spot errors or issues.
Always make your debt payments on time, as this can help your score. Additionally, avoid using credit for unnecessary expenses, opening new cards you don’t need, or maxing your cards, as those all have the potential to lead to trouble or lower scores.
3. Build an Emergency Fund
At some point, everyone faces a financial emergency. Whether it’s an unexpected car repair, medical bill, or other expense, having cash set aside gives you a safety net. Plus, if you can get three to six months of expenses stashed away, you can protect yourself against sudden job loss as well.
Start by getting at least $1,000 in an emergency fund. That way, you have a basic cushion against financial surprises. Once in place, only tap that account if you are genuinely experiencing a hardship, and replenish it as quickly as possible. Then, just keep stashing money away, allowing you to build it up over time.
4. Save for Retirement Now
As a recent college graduate, compound interest is your best friend. Since you have a substantial amount of time before you reach retirement age, even smaller contributions today can lead to big gains, all thanks to the build-up of interest or earnings over the years.
Whether you use a plan through an employer or open your own IRA, start saving for retirement now. Even if your initial contributions are small, they’ll add up and grow, making it easier to stash enough away to retire comfortably when the day arrives.
5. Leave (a Little) Room in Your Budget for Fun
If all of your money goes toward not-so-fun things, it’s easy to burn out. By dedicating some of your income towards entertainment or exciting purchases (like new furniture or a vacation), you have things to look forward to that you’ll enjoy.
While you don’t want fun to be a huge part of your budget, it should be in there. After you handle your expenses and savings goals, see how much is left and set aside a part of it for your enjoyment. That way, you can get the occasional reward for your hard work, and that will help keep you motivated.
Following these 5 financial tips can ensure a smooth transition from college to reality.
Do you have any financial tips that can help students transition from college to the real world? Share your thoughts in the comments below.
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