6 Financial Planning Tips for College Graduates

Graduating from college is a major life milestone. It marks the moment, for most of us, when we start “adulting” – taking responsibility for our financial future.

As a new college graduate it can be difficult to know where to start to set and achieve financial goals. It’s essential to think ahead and start laying the groundwork with your personal finance now that will allow you to buy a home, start a family and think about retirement.

At Addition Financial, we work on financial planning for college students all the time. We reached out to some experts and combined their financial advice with some thoughts of our own to help you make the most of your money, both now and in the future.

#1: Build Your Credit

Good credit is the foundation for most long-term financial goals. Without it, you won’t be able to qualify for a mortgage or plan for your retirement. Mason Miranda, a Credit Industry Specialist at Credit Card Insider, told us:

“College seniors and recent graduates should work on building their credit history to prepare their finances for the future. Most students don’t have an established credit background, which can leave them at a disadvantage for the future. Good credit history and high credit scores open doors for taking out loans, and saving money through credit cards.”

His suggestions for building good credit start with taking out a student credit card when you’re still in college. If you make timely payments and use the card responsibly, you’ll have decent credit by the time you graduate. You may also consider one of the following:

  1. Taking out a credit builder loan, which is a small loan designed to help people build their credit.
  2. If you can’t qualify for a credit card on your own, become an authorized user on a family member’s account. Make sure that the person you ask has a good credit history. When you use the card in your name, you’ll benefit from their good credit and timely payments.
  3. Refinancing any student loans into your name and paying them off aggressively.

We would add that you should remember that timely payments are the most important factor in determining your credit score. If you always pay on time, whether it’s on a credit card or student loan, it will have a significant impact on your score. It's all about setting those automatic payments!

#2: Keep Your Payments Low

Our next key piece of advice comes from Steffa Mantilla, a Certified Financial Education Instructor (CFEI) at Money Tamer. She told us:

“When you're graduating, it's smart to keep your payments low. As soon as you graduate, avoid the temptation to buy a new car, finance furniture and start spending lots of money eating out. Continue to live like a college student until you've paid off all your debt and have an emergency fund saved up.”

When you get your first job after college, it’s tempting to spend what you make above your living expenses (hello, full-time job income). Many college graduates are starting out with old cars and old furniture and it’s natural to want new things. However, it’s a good idea to delay spending if you can – at least until you have some serious funds in your savings account.

Depending on how much student loan debt you have, it may not be realistic to cease all discretionary spending until you’ve paid your loans. However, we recommend making extra payments to get your loans paid as soon as possible – and if you can make your old car last an extra year or two, then you should do it.

#3: Pay Down Your Debt

We already mentioned student loan payments, but let’s talk about why financial planning for college graduates should include a debt repayment plan while you're budgeting. This tip comes from Maria Alcantara, CIM, the Founder of Millennial Money Queens. She told us:

“Take care of any debt. Compounding works against you in debt, so pay more than the minimum and avoid the interest payment treadmill. The moment it is removed off your balance sheet, you can redirect that money to growing your own wealth, not someone else’s.”

Her advice was echoed by Karen Condor, a Finance Expert at US Insurance Agents. She points out that graduates should “make payments on time, [and] make above-minimum payments” to pay down debt, reduce interest rate costs and build credit at the same time.

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#4: Pay Attention to Benefit Packages at Work

Steffa Mantilla gave us a second piece of advice for recent college graduates:

“When you start a new job, make sure you pay attention to the benefits package. Many companies offer 401k matches which is a 100% return on your money. Some companies also offer commuter credits and company discounts for other services like cell services and gym memberships. It never hurts to pay attention, so you're not missing out on money-saving benefits that many employees never knew they had.”

Too often, we notice that employees fail to crunch the numbers on the benefit packages their employers offer. We would add that you should also be looking at your employer’s health insurance as an element of financial planning. An employer that pays all insurance premiums and offers a plan with affordable copays and deductibles is effectively paying you more than one who offers a minimal insurance plan with the same salary.

If you’re fortunate enough to have more than one job offer on the table – or if you’re contemplating leaving your current job for a new one – you may want to create a spreadsheet to compare salary and benefits. 

#5: Build an Emergency Fund

It’s common for recent college graduates to have little in the way of savings. Many have spent their college years living on a shoestring budget, eating instant ramen and pinching every penny. 

That said, having a financial cushion is crucial as you’re starting out in your post-college life. Even if you have a job lined up, there’s a risk of economic uncertainty. The COVID-19 pandemic has certainly taught us that.

We recommend setting money aside with every paycheck to create an emergency fund. Your emergency savings should have enough money to cover six months’ worth of expenses, including your rent or mortgage payment, car payment, gas, utilities, insurance premiums and groceries. That might sound like a lot but if you save diligently, you can build your fund quickly. 

Once you’ve built it, of course, you should continue to save. Our final tip has some information about how to use your savings.

#6: Invest in Your Future

Our final piece of advice comes again from Maria Alcantara and it’s in two parts. The first part is about retirement:

“Start investing as soon as possible, no matter how small. [As college graduates], we tend to defer things because we feel like we have so much time. The power of compounding [is something a lot of recent graduates don’t understand.] You’re earning interest on interest. When you understand that $100 a month can become hundreds of thousands by the time you retire, you will have done yourself a huge favor. Allowing your money to grow over time is much more powerful than playing catch up with retirement savings.”

We agree and we hear from a lot of members who wish they had started investing at an early age. It’s a common misconception that it’s not worth building a portfolio unless you have a lot of money to start. In fact, the opposite is true. You should start building a portfolio and investing now, so that you will have a lot of money later. You’ll be amazed at how quickly your money can grow if you invest it. Learn more about compound interest here.

The second bit of investing advice Maria gave us is this:

“Lastly, venture in starting something for yourself. You are young, this is the time to take risks, you have great knowledge and access to lots of technology. Any business will take time to grow, start young and learn from the experiences, even if you’re not financially successful, you will have gained much wisdom.”

Not everybody wants to be an entrepreneur but there is something to be said for working for yourself and building something that’s all yours. Some people may prefer not to take this step, but if you do want to go into business for yourself, you should start while you’re still young. There are plenty of business models that don’t require a huge up-front investment. 

Keep in mind, too, that you can always start your business as a side gig and build it from there. There’s no rule that says you can’t start small while you’re still working for someone else. You could put a little extra cash in your pocket, but as Maria points out, you’ll gain invaluable experience that will help you later in life.

Download Now: The Financial Guide to Starting, Growing and Managing Your Small Business

Graduating from college is the beginning of a new phase of your life. By using the financial planning for college graduates advice we have included here, you’ll be able to build a strong financial future. Also, we suggest meeting with a certified financial planner, especially during big life milestones like graduating college. They'll help you put together a solid financial plan that includes things like retirement planning and investment, tax planning, wealth management and budgeting.

Do you need a hand with financial planning for your post-college life? Click here to learn how Addition Financial can help.

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