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Money Management Tips for New Grads

Money Management Tips for New Grads

You’ve finally finished college! It’s such an exciting time as you move into your new career and plan for your life to come.

As you’re starting this new phase of your life, smart money moves will set you up for a lifetime of success.

First, review your finances. Focus on your debits and credits, or simply what money is coming in and what needs to go out. You can call this a budget, a cash flow plan, or just your spending plan. Do you need some help figuring out your cash flow? Read our blog about Managing Your Cash Flow here.

You might still be in your grace period for student loan repayment, or you might need to start paying as soon as your forbearance period ends. Therefore, make sure you’re paying attention to when those payments begin and how much they are for. Student loans may be your biggest debt payment at this point, so be ready for their effect on your finances. If you want to pay them off early, this is a good time to plan for extra payments if you can afford it. There’s no better feeling than making that final student loan payment!

This may sound obvious, but it’s extremely important to start saving if you haven’t done so already. Make it a part of your budget, not something you do when you have a little extra money. You’re most likely early in your career, which means you have an opportunity to grow your long-term savings.

When you add money to your savings account, it earns interest. That interest adds to the amount you’ve saved, and that money will earn even more interest. The interest “compounds,” continually growing the longer you leave it in your savings account. For example, if you save $1,000 and it earns 0.5 percent interest annually, at the end of one year, you will have $1,005 in your account. Then, the following year, your account balance will be $1,010.03. That extra three cents is the compounded interest — or the interest earned. Over time, that compounded interest can add up.

Compound interest has even more effect on an account with a higher interest rate, such as a certificate or your retirement fund, which is why financial advisers suggest you start saving for retirement early. If you put $10,000 in a retirement program that earns an average of eight percent interest per year, in twenty years, you’ll have more than $46,000 in that account without adding more towards the initial balance. Imagine how it will grow if you set aside funds from each paycheck and take advantage of any employer funds over your working life.

In the shorter term, you will want to make sure that you are setting money aside for emergency and rainy-day funds, so you have money for unexpected expenses or unemployment. This tactic will help prevent you from going into debt.

And if you want to buy a home or car in your near future, now is a great time to begin building a solid credit history. Check your credit report to ensure that it is accurate and to get a good picture of where your credit is now. You can get a free copy of your credit report at www.annualcreditreport.com. If you see errors, follow the instructions to report them to each credit bureau. That way, you won’t have any surprises when applying for financing, and keep checking it periodically throughout your life to make sure it remains an accurate picture.

If you need to build credit, apply for one credit card to use occasionally, and pay off the balance right away. That will show potential lenders that you can manage credit responsibly, which can affect your ability to rent an apartment or house and to make major purchases with credit when you need to. If you’ve made mistakes with credit in the past, do your best to build a better foundation for your future. Making payments on time is important because payment history makes up thirty-five percent of your credit score. Therefore, pay your bills on time, and don’t take out more credit than you need.

Finally, decide what you want your future to look like and set financial goals and priorities to get you there. You’re most likely just starting, and you can decide which direction you want to head in, whether it’s focused career growth, international travel, home, family, building a business of your own, or all the above. We’re here to help you reach those goals and live the life of your dreams.