You Just Graduated College, Now What?
It’s time to start adulting. Students around the country are graduating this month but are they ready to manage their money?
If you don’t feel ready to manage your income, student loans and debt you’re not alone. When you graduate, you’ll decide what type of spender you want to be. Will you invest in your future or will you settle for short-term satisfaction?
Taking the right path now can lead you down a road towards financial security. Here are three ways you can build financial security after graduation.
Take Advantage of Your Company’s Retirement Plan
Financial security includes a strong retirement plan. Most companies offer some type of retirement plan to employees. This usually comes in the form of a 401(k). Some companies will even match your contributions to a certain point.
With a 401(k), you decide on an amount you want deducted from each paycheck and put towards your retirement plan. That amount is taken out pre-taxes. Your company then invests that amount, so your money can make money.
While 401(k) plans can be riskier than putting money into a savings account, you can earn far more by investing in a 401(k) than the interest you would earn on a traditional savings account. The more you invest in your 401(k), the more money you should have for retirement.
If your company doesn’t offer a 401(k), you can open a Roth IRA account. This will allow you to withdraw from your retirement account without paying taxes on your money. A traditional IRA is another retirement option. With a traditional IRA you can lower your taxable income, which will help you pay less in taxes now.
Create a Student Loan Payoff Plan
Student loan debt can balloon quickly, especially if you have private student loans with high interest rates. While you can defer payments on your student loans, doing so could cost you. Forbearance will allow you to temporarily suspend or reduce your monthly student loan payments, but you will be responsible for the interest that accumulates during this time. The longer you wait to repay your loans, the more you’ll owe overall.
While paying your student loans can be challenging when you’re just starting out, deferring payment only means you’ll owe more overall. If your student loan payments are too high to cover with your new job, attempt to apply for deferment instead of forbearance. With deferment you are generally not responsible for paying the interest that accrues on direct subsidized loans, subsidized Federal Stafford loans and Federal Perkins loans. Not everyone qualifies for deferment, but you can apply through your lender.
If your payments are high due to high interest and you have multiple student loan lenders, consolidating your student loan debt could help. There are more financial institutions and lenders willing to consolidate student loans today than there were in the years directly following the Great Recession. Be sure to review the rates and terms of your loan consolidation to ensure you’ll be paying less each month by consolidating your student loan debt into one loan.
Living on a tight budget may seem lame as a twenty-something new grad, but you’ll thank yourself in the future when you’ve paid off your student loan debt before your peers.
Start Saving for Rainy Days
Unexpected expenses are both unpredictable and inevitable. Whether it’s a last-minute trip home for a family event or an expensive car repair, you could find yourself in major debt if you don’t have an emergency fund.
Putting money away when you’re a new grad is a struggle. Now that you’re out of college your bills can include rent, utilities, parking, car payments, groceries and student loans. You’re expected to pay all these bills with an entry level job, which can make it hard to put money aside.
Still, creating a budget can help you put enough away for emergencies. You should have at least $1,000 in your savings account to use in case of an unexpected expense.
Financial planners advise having an emergency fund that can cover between six months and a year of expenses. This is a huge goal that doesn’t come without challenges. However, it can protect you against bankruptcy and financial hardship should you be laid off or lose your job.
Set yourself up for financial security by starting early. As a new grad, now is the time to invest time in financial planning.
This post is not intended to be a solicitation for a loan. Pomo One Marketing, Inc. provides these blogs for entertainment and informational purposes only. Remember to consider all your financial options before making any decisions related to credit.