May marks the start of Graduation season for the Class of 2021. The end of their Junior year and the whole Senior year was one like no other due to the COVID Pandemic. Some college graduates have studied physics and will pursue rocket science as a career. Others plan to become doctors, memorizing every bone in the body, while a few are walking encyclopedias when it comes to history or other fields of study. But how many of them can – and do – balance a checkbook?
According to a 2020 study by Pew Research Center, 52% of 18- to 29-year-olds are living with their parents has become a majority since U.S. coronavirus cases began spreading early last year, surpassing the previous peak during the Great Depression era. In a previous Pew study, “28% of Americans between the ages of 23 and 38 still live with their parents or with other family members. This is attributed to the nation’s student loan debt, which stands at an all-time high of $1.54 trillion”. As of the first quarter of 2021, it is now up to $1.73 trillion in federal and private student loans. The job market keeps graduates in internships and minimum wage positions for years after college. That means many recent college grads have never paid their own rent, balanced a checkbook, or created a budget, much less learned to live on one.
The good news in this grim statistic is that learning the basics of personal financial management isn’t really all that difficult. Here are five personal finance strategies that can help you get your post-college life off to a good start:
Learn how to create and live on a budget.
We’ve listed this as the first strategy because it will provide the foundation for everything else you do from a personal financial management standpoint. Until you have some knowledge of and control over how much money you’re earning and spending, you won’t be able to implement any other personal finance strategies.
The concept of budgeting is actually very simple — it’s the execution that’s often difficult. The first step is to determine your total monthly income and expenses. Then subtract the latter from the former to see whether you’re currently spending more or less money than you make.
Hopefully, you’re spending less, in which case you can start thinking about how you’ll save and/or invest your excess money (see the next two strategies below). If you’re spending more than you make, it’s time to take a hard look at your expenses and figure out some areas where you can cut back a little — or maybe a lot. Additionally, you might consider a part-time, second job to boost the income side of the ledger.
Make saving your top financial priority.
As they embark on their professional careers, new college graduates often place saving at the bottom of their priority list, since their income is probably relatively low. But making saving a top priority instead will instill strong financial habits that can last a lifetime.
Regardless of how small your paycheck is, you can probably afford to save something. The amount isn’t as important at this stage of your life as building the discipline of saving. One strategy is to save a percentage of your income — this way, your savings will automatically increase as your income grows.
Start thinking about retirement.
Yes, we said retirement. While retiring might seem like it’s the last thing you need to think about now, the reality is that the sooner you start saving for retirement, the more time you have to benefit from compounding returns and tax benefits.
In fact, time is the retirement saver’s best friend. Getting an early start on saving for retirement can make a huge difference in how much you will have saved up.
Since investing for retirement is, by definition, “saving”, you will be killing two birds with one stone if you put money into a IRA account. UKRFCU offers a variety of IRA’s that put your money to work, so that one day you won’t have to. Open an IRA savings to invest in a risk-free, high-yielding retirement account and save money in a tax-advantaged way. Or watch as your savings add up with an IRA Share Certificate that offers a range of certificate terms, competitive rates. To learn more see our IRA page
Get — and then stay — out of debt.
Excessive debt could be the biggest detriment to your long-term financial security. So, paying off any debt that you have when you graduate college should be another top financial priority.
If you have any student loans, start with them. Set a goal for having these paid off by a certain date in the future — maybe five years from now. If you have racked up any credit card debt while in college, also pay this off as quickly as possible. If you want to consolidate your debt,
Then make a commitment to staying out of debt, especially high-interest credit card debt. One way to do this is to pay for all purchases with a debit card or cash. If you do use a credit card, pay the balance in full each month to avoid paying interest charges. To learn more about how to get and stay our of debt read our previous post “Paying Off Debt: One Step at a Time.”
Build a strong credit history.
Your credit score will become one of the most important parts of your financial life – either positively or negatively – going forward. It will affect everything from whether you are approved for a car loan or mortgage (or even an apartment lease) to the interest rate you will pay on these and other types of loans. Some employers even check credit history before offering a candidate a job!
The best way to build a strong credit history and keep your credit score high is to pay your bills on time.
Examine your credit report carefully and contact the appropriate credit reporting bureau if you spot any errors or mistakes to get them resolved quickly. Mistakes on your credit report may be signs of identity theft. To learn more about how to manage your credit cards and credit history read our previous post. Or if you are interested in learning more about our Credit Card options click here.