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I Just Graduated College. Now What?

First things first, congratulations! Graduating college is a major accomplishment! After years of hard work, be sure to take a minute to pat yourself on the back…

Ok, great, now that’s done, it’s time to get down to business. As a college graduate, you’re officially a real adult. This new status can be jarring – especially all of the financial responsibilities that come with it. No matter how many classes you aced, chances are you haven’t had much formal training in budgeting, health insurance, and saving for retirement.

You probably weren’t given a catch-all manual for how to transform into a fiscally responsible adult as a graduation gift. However, you do have us. Since we’re dedicated financial experts, we’ve compiled some financial advice for college graduates.

Financial Advice for College Graduates

Keep living like a starving college kid

Once you get a job and your first real steady paycheck arrives, it can be tempting to start spending that money right away. You’ve been a broke college kid for years, living off of ramen noodles and dreaming of the day when a cup of coffee from Starbucks doesn’t clear out your bank account. Suddenly, you have money to spend and it can be tempting to treat yourself to a new Apple watch or dinner out every night of the week.

But this would be a mistake.

Before you kick-start a spending spree, sit down and plan a budget.

How do you do that? Start with the amount you take home and list out all of your fixed expenses. Include everything: car payments, rent, and student loan payments.

Once that’s done, you need to factor in discretionary spending for expenses like food, clothing, and entertainment.

The last thing you’ll want to account for is savings. You need to make sure you’re saving a portion of every paycheck. If you’re not sure how much that should be, check out our article How Much of My Paycheck Should I be Saving?

Unless you landed your dream job out of college, you’ll likely find that you don’t have that much money left over. This is discouraging, but remember, you’re playing the long game. The more responsible you are now, the better your life will be in the long run.

If you’re having trouble with budgeting on your own,  help is always available. Union Trusted Advisors can help you create a budget you can live with. Schedule an appointment with us today.

Emergency fund

So let’s say you made a budget and you’ve managed to stick to it. But then your car starts having issues, and sure enough, you need a new transmission. It’s going to cost you $3,000 that you never planned for.

That type of bump-in-the-road can completely bungle your budget.  Unexpected expenses can happen at any time, which is why it is so important to start an emergency fund that is separate from your normal spending money.

There is no hard and fast rule for just how much money you should have in your emergency fund. Some gurus suggest saving up $1000, while others recommend saving three to six months of living expenses. No matter which one you choose, it’s ideal to save 15-20% of every paycheck. Remember, this isn’t a vacation fund or a new phone fund. If you’re craving those luxuries, save for them separately.

If you know you’ll be tempted to spend your emergency fund if it’s mixed in with your checking account, consider opening a statement savings account.

Establish credit

You may have been able to exist without a credit score in college, but it’s something every adult needs.

You’ll need a credit score when you buy a car, buy a home, and take out a loan. Some employers will even check it when considering you for jobs. If you already have a solid credit score, keep working towards improving it. To start building credit, apply for a credit card. Start with a smaller line of credit and continue building up your credit score from there.

Important tips to remember when using a credit card:

  • Pay your bills on time. This is the big one. Debt is a hard hole to crawl out of, so do your best to only spend money you actually have.
  • Check your credit reports regularly to protect yourself from identity theft. Simply put, make sure your credit card purchases are ones that you actually made.
  • Keep your credit utilization ratio under 30%. Your credit utilization ratio is the relationship between how much you spend and how much available credit you have. So if you if you have a card with $1,000 credit limit, in order to keep your credit-to-debt ratio from damaging your score, you should carry no more than a $300 balance on your credit card every month.
  • Don’t open too many new accounts at once. Choose a reliable card with low interest rates for your first card and build up your score a little before considering opening a new account.

Start saving for your retirement today

As a young person just starting out, there are plenty of responsibilities that you can put off until later in life.

For example, you probably don’t need to invest in a life insurance policy just yet. Also, you probably don’t have to worry about getting a down payment for a home right away after graduation.

However, you absolutely do not want to put off saving for retirement.

Retirement funds grow based on how much you put into them and for how long. Waiting until your thirties to start saving for retirement can take a huge chunk out of your future fund. For example, let’s say you invest $5,000 annually for 10 years from age 25 to 35. Assuming you have a 7% annual return, by the time you’re 65, you will have around $602,000 saved. However if you started investing in your retirement fund for 30 years from age 35 to 65, you will only have saved around $541,000.  By saving for just ten years when you’re young, you can out-save someone who starts later in life and puts much more money aside.

Do your future self a solid and start planning for retirement today. Check out your options for either a Traditional IRA or a Roth IRA today. Seriously, it’s never too early.

Get insured

You loved coasting by on your parents’ health insurance. Unfortunately, you can’t bank on that. You need to secure your own insurance.

Don’t think that because you’re young you can put off getting health insurance. No matter how healthy you are, you need health insurance.

Many jobs will offer some form of health care, but when you’re just starting out in your career, your plan may not cover everything you need. That’s where a Personal Health Savings Account (HSA) can be beneficial.

If you participate in a High Deductible Health Insurance Plan, you qualify to open a tax-advantaged HSA. This account works like a savings account created especially for your medical expenses. That means it allows you to make pre-tax contributions that you can use to pay for medical bills before you reach your medical insurance deductible  – or for qualified expenses that aren’t covered by your plan.

So let’s put this in simpler terms. Imagine you break your leg and need physical therapy, but your insurance has a $500 deductible for physical therapy treatment. What this means is that you will need to spend $500 of your own money before your health insurance starts chipping in. This is where an HSA comes in handy because you can use those pre-tax contributions in your account to pay that $500.

One more important point: you own your HSA, and it’s yours to keep even if you change jobs or health plans.

Know your local banker

Remember, no one is expecting you to have all of the answers right out of the gate. You have resources available to you – use them. One of the best things you can do is find a bank you trust, and then build a relationship with them.

The experts at Union Community Bank have financial advice for college graduates to help you make your financial transition into the real world go well.

Contact your local Union Community Bank today to set up an appointment to:

Sounds like a big first step. Relax, we’re here to help. Visit us at one of our 14 branch locations and we’ll be happy to get you started on your next adventure in life.

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