Graduation, the day you’ve worked towards for years. Once you walk across the stage (or should we say proverbial stage this year) and take that diploma a new stage of life begins. There will be many new decisions and actions ahead of you, but here are a few simple moves to take as you enter that next stage of life.
1) Keep your cost of living below your income. As your income increases it will be easy to start spending more. You might feel like you deserve to splurge after those years of living like a “poor student,” but if you try to keep that mentality for a few years you will be able to build a solid financial foundation. Housing is one of the largest expenses you will encounter so look at ways to keep this low. Consider a roommate or even moving back in with your parents for a period of time. This will allow you to spend less each month and put that money towards your financial goals.
2- Make a plan for your student loans. Take the time to research your loans and to find out the details of each. Reach out for help if this is something that you are struggling to understand. There are resources such as Loan Buddy (https://www.loanbuddy.us/), loan counselors, or financial planners like the team at Rooted Planning Group (don’t miss out on Becky Eason’s monthly blog on this topic) to help you work through these. Making moves early on these will get you on the right payment plan. If you are able to pay more on these early and lower your principal this will lower your interest paid over time.
3- Start an emergency savings account. Get in the habit of putting away some money from each paycheck. Check with your bank to see if you can set up an automatic transfer into a separate savings account with each deposit. I also encourage people to make this money harder to get to so it is not tempting to spend it. Even a small amount will start to add up over time and will be available in the case of an emergency (so that expense does not go on a credit card) or the start of long term savings goals.
4- Take advantage of retirement plans. If your employer offers a 401(k) enroll as soon as you are able. If your employer offers a match your first goal should be to defer as much as they will match, for example if they match the first 3% defer at least 3%. That is like free money into your retirement plan. If you don’t have an employer plan you can open your own IRA. Set up transfers into your IRA to correspond with each paycheck.
5- Track your expenses. Just tracking where your money is going will be beneficial. It will make it easier to build a budget when you are ready for that step. Getting in the habit of looking at your expenses and seeing where your money goes naturally makes you more aware of your money. There are numerous apps to track this automatically or if you like to be more hands on you can create a spreadsheet or just write it in a notebook.
While it is tempting to start bumping up your standard of living after school, slowing that process down and being disciplined with your money will help build a strong financial foundation to take you into your future. If you find ways to keep your expenses low and work towards saving and paying down debt you will be ahead of your finances, less stressed over money, and develop long term healthy money habits.