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How to Manage Your Finances After Graduating College
Congratulations, graduate! You did it! You’ve earned your degree, and maybe even a new job. But before you get started, here’s one last assignment: make a plan to manage your post-college finances.
That degree you earned might open the door to a higher salary — and carry a student loan burden — so it’s important to know how to balance it all as you set the stage for the rest of your life. That first “real” job may make you feel flush with cash but resist the temptation to splurge; establishing good financial habits now will serve you well into the future.
1. Map out a budget
As a college student, you probably got accustomed to living frugally, but maybe you also got used to utilities being included in your dorm expenses, meal plans, and readily available transportation. Now that you’re leaving that environment, there’s a few things you’ll need to figure out.
In building your budget, start with the essentials:
- Rent or other housing costs
- Food and personal care items
- Transportation (car payments and maintenance, gas, bus or train passes)
- Ongoing bills, such as utilities
- Debt repayment, such as student loans
If your job doesn’t offer healthcare benefits, you might need to add that in too (more on that in a moment). What’s left over is yours to allocate for spending and saving. It’s probably wise to limit eating out and splurging on clothes and entertainment.
A good way to live within your means is to figure out how much discretionary spending — that’s what’s left over after necessary expenses— you can afford each month. This will be easier to compute after you’ve been working for a few months and have a better grasp of what your take-home pay is after taxes and other deductions.
Housing will likely be your largest post-college expense and there’s a large selection of newly built complexes with tons of amenities popping up all over the Philadelphia area. It could be tempting to splurge on an impressive apartment with all the extras, but it might not be the wisest use of your rent money. You’ll likely need to pay first and last months’ rent, plus a security deposit, and that will take a big bite out of your bank account. And that’s not counting any utilities or other housing related expenses, like renters’ insurance, you’ll be responsible for. Having roommates may make it a little more affordable, but remember you are committing to the terms of a lease, and there may be a stiff penalty for breaking it.
Moving back home may be an option to consider, especially if you can do it for minimal (or no!) rent. Even as a short-term solution, the money you save can be used to pay down student loans, establish an emergency fund and even start building a retirement account.
2. Build an emergency fund
One of the most important things you can do for yourself is set up an emergency fund. It’s most commonly recommended to have 3 to 6 months of living expenses set aside in a separate account, one that can be easily accessed in, well, an emergency. Chances are you can’t afford to fund it completely right away, but stashing away even a small amount of money on a regular basis can help your savings grow. (This is a great place to stash at least a portion of any cash you might receive as a graduation gift!)
What’s an emergency fund for? Emergencies, like your car breaking down or an unexpected medical expense, not Taylor Swift concert tickets or a weekend in Atlantic City with your friends. It can be hard to know there’s money just sitting in an account while you have to pass up those designer shoes or a state-of-the-art gaming laptop on sale, but when an emergency arises, you’ll be glad you did. When you can pay in cash for a major expense like an unforeseen car repair instead of racking up interest by using a credit card, you can avoid incurring a debt that may take years to overcome.
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3. Review insurance coverage
Accidents happen, and when they do, having the right insurance can make a huge difference. Health insurance is something we all need, and depending on your situation, you may still be eligible for a parent or guardian’s healthcare plan, or your new job may provide coverage. If that’s not the case, health insurance should be high on your priority list. Thanks to the Affordable Care Act, you can get healthcare benefits that will cover both regular medical care and emergencies. You can also get more information from the Pennsylvania Insurance Department.
In addition, if you have a car, you’ll need to make sure you have the right insurance coverage for that as well. In Pennsylvania, a car insurance policy with a minimum amount of liability coverage plus first party medical is required, but that’s just the starting point. Consult with a reputable insurance agent to make sure both you and your vehicle are covered appropriately.
Don’t overlook renters’ insurance either. While it isn’t required by law, most mortgage companies require homeowners’ insurance when you purchase a home. Similarly, Pennsylvania state law doesn’t require renters’ insurance, but many landlords and management companies may require that you have coverage before you move in. Renters’ insurance covers not only your belongings but can cover you personally if someone is injured in your home. It can even cover your possessions while you’re away from home or traveling.
And if you don’t already have it, you may want to look into Identify Theft Protection Insurance. Identity theft is on the rise, and as you build up your savings and credit profile, you have a lot more at stake. Citadel Credit Union offers protection from identity theft and personal Recovery Advocates to help you recover. It’s a small expense that offers invaluable peace of mind as you’re getting started, and for the long haul.
Make sure you, and your things, are well protected. Citadel can answer many of your insurance questions, from evaluating your needs to helping you find coverage.
4. Pay down what you owe
As of April 2022, Pennsylvanians carried $64.5 billion in student loan debt, with an average debt of $35,385, and 58.5% of those in debt are under age 35. With an estimated average monthly loan payment of $460, paying down your student loans can feel overwhelming.
Having a plan to pay down these debts can make things easier. Your monthly budget should include your student loan payments, and you may be able to adjust your repayment plan based on your financial situation. The standard plan calls for equal monthly payments for 10 years. If you have a steady income and good credit, or can use a co-signer, you can refinance the loans to get a lower interest rate and possibly pay off your loans faster. Before refinancing, make sure you won’t lose any important federal loan benefits, such as loan forgiveness.
5. Build up your credit
Perhaps the last thing you want to do is add to your expenses by running up new credit card debt. Plus, navigating the ins and outs of credit can be confusing. Still, it’s to your advantage to have a credit card to build good credit. A good way to do that is to make regular small purchases and pay them off right away to establish your creditworthiness, especially if you don’t have a credit card, or have been on your parents’ account.
Opening a new credit card in your own name can help you build your credit profile if you use it wisely. It’s important to know that a credit card is essentially a loan, not free money. Carrying a balance on your card means paying more in interest, so be sure you’re able to pay for your charges when the bill arrives. (This is where having a budget can really help!) As an added bonus, using your card responsibly and paying on time can earn you a little extra money when you use a rewards card like Citadel's Cash Rewards Mastercard.
6. Establish a portfolio and retirement savings
When you’re in your 20s, retirement may not even be on your radar. You’re just starting out, building your career, and retirement is decades away. You’ve got plenty of time, or do you? Time is definitely on your side, but maybe not in the way you think. Instead of putting off saving for retirement because you think you have so much time, use that time to develop good financial habits and a healthy account balance.
- Get in the routine of consistently putting money away for retirement. Time helps reinforce that habit and it becomes nearly automatic.
- Set a percentage of your paycheck to automatically deposit into a retirement account, and you don’t even have to think about it.
- If your employer matches a portion of your contributions, that really is free money for you.
- There are tax benefits to consider as well.
- The longer your account has to grow, the more money you will have when you’re ready to retire.
That’s just the basics. Investing your money by buying stocks or mutual funds when you’re young is the best way to build a portfolio, because you have decades for your money to grow. In other words, you have time to ride out market declines and earn good long-term returns. Consulting with an investment advisor can help you build the right plan for your personal finances. They’ll guide you through the process, help you understand what everything means, and work with you to make the most of your money.
You may have graduated from college, but the learning never stops. Taking the time to understand your finances and make educated choices is just as important as earning your degree. Count on Citadel to be your partner not just as you start out, but for your entire financial journey.
