You did it! You’ve just graduated – Congrats! Before your first paycheck starts coming in, it’s time to rethink your spending habits and finally get your finances in order.
As you decompress after graduation, you need to start planning out your finances as soon as you can.
Those student debts you accrue during college aren’t going to pay for themselves, right?
On top of that, you now need to pay for your own rent, food, sustenance, and lifestyle.
So with all that said, we have created this guide to help you wade through the storm and, hopefully, payback that student loan as quickly as possible.
Table of Contents
Reassess Your Debt
Student loans are something that can cause a lot of strain on you both mentally and financially.
For this reason, you should get this out of the way as soon as you can.
To start the ball rolling, you need to determine exactly how much you owe, the interest rate, and what payment options you have.
As overwhelming as it may seem, paying back student debt is possible. In fact, depending on your financial situation, your repayment options could be lower than expected.
However, if you find yourself struggling, you can always refinance your existing student loan into a new one with a private lender.
A student loan refinance is when you consolidate your current debt into one payment by getting a new loan. And with a private lender, paying it back is easier, thanks to the lower interest rates they offer.
Keep in mind that as you start working, loan payments do not just drastically go up and your income progresses or increases over time.
So unless you inflate your lifestyle or spending habits, you would be able to pay all your loans in no time.
We understand that paying off your student debt might require few sacrifices, but hang in there, there’s always a light at the end of the tunnel.
Create a Budget
Now that you know exactly how much you owe, it’s time to start mapping out your finances for the next 5 years or so.
With that, you should start budgeting your paycheck and learn to stay disciplined with your money.
Budgeting is a crucial skill that everyone needs to learn. It’s how you keep your finances organized and have savings left over after paying your expenses.
But for many new college graduates, budgeting may not always be the easiest thing to do.
You may not know how much should go towards certain expenses or how to negotiate lower payment options.
These are often not taught in school so we understand and feel your struggle as well.
So before you allocate and spend your first paycheck, the first thing you should prioritize is your essentials such as
- rent,
- bills;
- and groceries.
About 50 to 70 percent of your budget should go directly to these expenses; while, 10 percent of your budget should be considered spending money and the rest on your savings.
Once you get into the habit of following a budget, it’ll become second nature and you’ll start doing it instinctively.
To keep your budget on track, list all your spending at the end of the day and make it an everyday routine.
This way, you can tell where all your money goes, how you spent it, and even find other ways on how you should have spent it and save money for next time.
Thankfully, doing all these is not that difficult. You can download any money manager app or just simply use Excel to make this routine a lot easier.
Plan your Retirement Savings
Before your first paycheck starts coming in, you should know that apart from the tax deduction on your salary, there will be deductions for benefit programs as well.
These benefit program deductions are mainly there to support you when you get sick or grow old enough to retire.
We know that you just graduated from college and you’re probably thinking why should I think about retirement now when I’m just about to start on my first job?
Well, the sooner you start saving for retirement, the more money you’ll be able to live off when you grow old and weak.
And on top of that, looking out for your retirement accounts now can save you tons of money because you can split the bill or contribution with your current employer.
What does that mean?
To give you a brief overview of how these things work, you should know that the two most basic types of retirement accounts are the 401(k)’s and the IRA.
401(k)’s
401(k)’s is an account set up by your employer. Depending on the contribution plan you choose, your employer can match it and you can put in a certain percentage of your salary into that account.
Let’s say your employer told you that they would match your contribution up to 5%. In that case, if you choose to max it and contribute 5% of your salary into your account, then your employer needs to contribute 5% to your account as well.
In total, your 401(k) account gets 10% of your salary. Once you grow old, you can get this money back (with interest) so that you can retire more comfortably even without working.
However, keep in mind that the example we have stated above is not always applicable to everyone.
The way your employer structures their plans might vary. You might not be able to participate in the 401(k) until one year or your employer might not even match the full 100% of your contribution plan.
So it’s best to be on the lookout and take all of these into account especially if you are to negotiate your salary and work arrangements with your future employers.
IRA
Unlike 401(k) where your employers can cash in and open an account for you, IRA or individual retirement account is different.
Your employer is not required to contribute and you do not need an employer to set up your account.
Through IRA, you can create your own account and start saving for your retirement as early as 18 years old.
It’s a great option for recent college graduates who are working as a freelancer or doing several paid internships.
Since these types of work do not necessarily offer retirement benefits like 401(k), you can just open your IRA account and allocate some of your money there.
Reevaluate your Expenses
Now that you finally have an idea where your paycheck usually goes, it might be best to reevaluate your expenses and rethink your current lifestyle.
As much as possible, try to minimize your biggest expenses.
For example, you can move into a cheaper or nearer place to your work in order to save money on the commute or spend less money on food and avoid eating out from time to time.
Once you leave the comfort of your dorm or campus housing, you will quickly realize how much your usual expenses back in college can add up.
As a result, you would be forced to make some changes in your previous living expenses and you would even have to sacrifice a few things just to make ends meet.
Start Building Your Credit
Your credit is one of the most important financial assets you have.
It’s your credit score that determines whether you’re approved for a loan or mortgage and even possibly employment.
In addition, if you’re applying for a loan or credit card, your score also dictates how much you are able to receive. So if your credit score is lower than average, the less likely you are to be approved.
Even though building a good credit might seem like a daunting task, it’s not that difficult once you nail down and get your budget system in order.
You shouldn’t have to extend your loans or maximize your credit utilization rate just to boost your score. Remember that a good credit score comes from disciplined and sound finances.
It would be much harder for you to build good credit if you do not have a budget system and you are just compulsively spending all your money without planning or thinking ahead.
As a rule of thumb, try to keep your credit score in the 700 range or higher. You can easily do this by having good money habits and sound spending decisions.
All in all, you just have to pay your debt on time and avoid accruing loans more than you can afford.
Set Aside an Emergency Fund
Unplanned expenses can ruin your entire budget system and even sink you into more debt.
Your emergency fund is your seatbelt that keeps you safe from every financial bump you hit on the road.
It can help you cover unexpected expenses like medical costs, car repair, apartment maintenance, accidents, and many more.
These scenarios usually happen unannounced so it’s best to be prepared and avoid running up another loan again.
Ideally, your emergency fund should be able to cover up at least 3-6 months of your expense. This way, you would have an ample amount of money even if you get laid off from your job.
However, in the real world, setting aside this much money would require several sacrifices and it would take too much time.
To overcome this roadblock, it is best to start with small, regular savings.
Given that it might be hard for you to set aside funds with your entry-level job out of college, it is in your best interest to set smaller savings goals.
This way, it would not be too overwhelming and you can easily stay consistent.
Ask Around and Learn from Others
One of the best things about being a fresh graduate is that almost everyone is always willing to offer or give some sort of financial advice.
Of course, you do not have to listen or follow all of it.
But, it would be great to hear other peoples’ way of handling their own finances, pick up a few advice from them, and maybe even learn something from them that you should not do in the future.
Hearing advice from the people around you would give you a better idea of how you should handle your finances and even provide you some insights on how you can better improve them.
You can ask your parents how they have handled their retirement savings, your older colleagues how they were able to pay off their student loans, or your college friends how they were able to smoothly transition and minimize their usual expenses from college.
Keep in mind that these people have been in the same financial boat as you (deep in student debt and low on cash).
So hearing how they managed to overcome it would not only help you make sound financial decisions, but it would also provide a glimmer of hope that you would eventually get past this and finally repay all your student loans.
Conclusion
All in all, even though you have graduated from college, the debt you may have acquired still remains.
But through a couple of reassessments and reevaluation of your finances, you would be able to pay all of these in no time.
To briefly recapped, we have covered a few things that would surely make you rethink your usual spending or money habits
- Reassess Your Debt
- Create a Budget
- Plan Your Retirement Savings
- Reevaluate Your Expenses
- Start Building Your Credit
- Set Aside an Emergency Fund
- Ask around and Learn from Others
Remember that you do not have to rush in and do all of these at once.
Graduating from college is one of the most rewarding accomplishments you will ever achieve. So try to relish it as much as you can.
You do not have to go to great lengths just to pay off your student loans immediately.
Take a load off and relax, at least for a minute, before you jump to the next phase.
It’s important to pay your student loans but you should not have to sacrifice your health and wellbeing just to get by.
Todd VanDuzer
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