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Recent college grads have more on their mind today than ever before. With a tight job market and rising housing costs, the post-college transition can be tough. But, it doesn’t have to be that way. If you learn how to manage your money now, the liberating feeling of financial independence will follow.
Tips for Recent Graduates: Learn How to Manage Your Money
1. Set a Budget and Stick to It
Once you receive that first paycheck, you should calculate how much money you will actually take home in a month. Then gauge what will be your recurring monthly expenses, including rent, car payments, student loans, etc. These are fixed monthly expenses that should be deducted from your available budget first. We suggest budgeting all aspects of your life even “fun money.”
When you do set a budget after college, think frugally. Learn how to manage your money today by looking for cheaper alternatives when shopping or even learning how to cook.
2. Learn How to Manage Your Debt
Whether it is student loans or credit cards, it’s often unavoidable for recent grads to incur debt of some type. But accumulating some debt isn’t always a bad thing, if you learn how to manage your money correctly.
Credit card debt can pile up quickly if not handled responsibly. However, if college grads manage their money properly, a moderate amount of credit card debt can be used to establish a credit history. If you really want to learn how to manage your money, you should track your credit reports regularly.
By paying back a moderate amount of credit card debt, recent grads can begin to establish a credit history that can be useful later when applying for a car loan or a mortgage.
3. Start Establishing an Emergency Fund Now
A smart financial strategy for millennials is to establish an emergency fund. The sooner you begin putting money away, the sooner you will be on sound financial footing. A good rule of thumb is that your emergency fund should be able to cover three to six months of living expenses. This cushion can be used during times of crises like health problems or the loss of a job. To safeguard against an emergency, recent grads should start setting aside money as soon as possible.
4. Enroll in Health Insurance
Health insurance is another essential component of a sound financial plan. While health insurance will cost you money upfront, it’s an invaluable way to protect yourself in the event of an unexpected medical emergency, which is the number one cause of bankruptcy in America. Currently, 20 year olds are the least-insured age bracket in the country. Smart college grads should take advantage of a recent law that allows them to remain on their parents’ health insurance plan through age 26.
5. Begin Investing for Retirement
In their early 20s, the last thing millennials may be thinking about is retirement. But, if your goal is to learn how to manage your money the right way, saving for retirement cannot be ignored. Financial experts suggest that it’s best to start saving small amounts of money for retirement as early as possible. This money can grow with interest over time. If you are lucky enough to work in a company with a pension or 401k plan, take advantage of this golden opportunity to save for retirement.
At DeFreitas & Minsky, we specialize in all aspects of tax returns on Long Island. If you need advice about personal financial planning or would like any other assistance, don’t hesitate to call DeFreitas & Minsky Certified Public Accountants at 516.746.6322.
