Money Advice for College Grads: How to Create Long-Term Financial Success

Graduation is right around the corner. You’ve worked hard and earning your college degree is a huge milestone — one of the biggest in your life.

Now comes yet another challenge: Managing your finances in the real world. Indeed, as you set out into the working world, you’ll need to keep in mind living expenses, like paying rent and household bills. It would also benefit you to start an emergency fund and begin saving for retirement (even if it’s 40 years away). And don’t forget your student loans, which won’t go away on their own.

Take it from me, getting on the right path now sets you up for long-term financial success. Here are some tips to get you started:

Live within your means

If you’re one of the lucky few, you may already have your dream job lined up after graduation, which means you can say goodbye to a strict noodle diet or a minimal college student budget.

Yet regardless of what type of job you have, you’ll still need to learn to live within your means. To do this, you’ll have to take a realistic look at your income and expenses. Even if you lived in an off-campus apartment with roommates during college, going out on your own means you’ll have more expenses like utilities, Internet service fees, groceries, and possibly a security deposit (sometimes first and last month’s rent). Then there are other necessities, like transportation and insurance costs.

Having a budget in place is a smart way to make sure that your earnings can cover these expenses, ideally with money left over to save. If not, you may need to find ways to free up some cash, like getting a roommate, taking a side hustle, or cutting back on discretionary purchases, like gym memberships, eating out or cable subscriptions. Using a budgeting app such as You Need a Budget or Mint can help get you started.

Bank on a new bank

Finding a good bank that has your back should be high on your list and can save you a significant amount money. Most big banks rely on charging their customers fees and other unnecessary surcharges like minimum balances, overdraft fees, foreign transaction, fees, etc. In fact, the average American pays around $329 in bank fees every year. If you currently have a student checking account with no fees, make sure to read the fine print: those fees might kick in once you graduate.

A mobile banking app like Chime, on the other hand, is built with the sole focus of helping Member’s save money. There are monthly fees, no minimum balances, no overdraft fees, and no foreign transaction fees.  Chime is also an Automatic Savings app. Every time you use your Chime Visa Debit card, the app rounds up the spare change and deposits it into a Savings Account. Think about it this way: The money you save can also be put towards paying down debt or bolstering an emergency fund.

Pay down your debt

The average college graduate carries more than $37,172 in student loan debt, and those numbers are rising — over 275 percent in more than just a decade! This might be your biggest expense, and it’s your job to make sure you keep up with your payments. If not, you could risk going into delinquency or default.

When paying off your student loans it’s important to first, take note of how much you owe. Is it a mix of federal and private loans? You can access your total federal balance at the National Student Loan Data System. For private loans, you can check your credit report to see what you owe.

Aim to pay as far in advance as possible so you won’t fall behind if you encounter a lean month here or there. You can also structure your payments so that you pay the most each month toward your loans with the highest interest rates. Finally, you can make the minimum payments to those with the lowest interest rates.

If you are struggling to meet your payments and you have federal loans, you can also apply for a deferment or forbearance. These are types of temporary holds on your payments which allow you the time to regroup financially. Deferments can last up to three years, and if you can prove financial hardship, forbearances last one year. If it’s still too much of a hardship, consider refinancing your loans for new interest rates and payment terms that align better with your finances.

A final tip: You may also want to consider loan consolidation, whereby you can combine several loans into one new loan with a new, refinanced interest rate and/or extended payment terms, lowering your overall monthly loan payment.

Concentrate on your credit

For most college students, a campus meal plan and a debit card may have been your two main choices of currency. So, if you’ve never really used credit before, take this as a chance to start building your credit profile.

Building your credit up is essential because eventually, you’ll need credit to buy a house, a car, major appliances or even furniture for your apartment. In each of these situations, you may need to borrow money and in order to do this, lenders will want to know if you’re trustworthy enough to afford a loan and pay it back. For that, they’ll want to see that you have a history of using credit responsibly. In other words, lenders want to see that you don’t borrow more than you need and that you pay your bills on time. Welcome to the world of credit.

A credit card is the perfect “credit builder” because it gives you a chance each month to charge purchases to your card and pay it back at the end of each billing cycle. There are an assortment of student credit cards and secured credit cards designed for people with little to no credit history. To help improve your credit, it’s also important to pay off your credit card in full each month and avoid carrying a balance. This way you’ll be less likely to go into debt or be faced with paying off accrued interest charges.

Of course, using a credit card responsibly doesn’t mean you should say goodbye to debt altogether. Spending too much on credit is a signal to creditors that you rely on your credit card too much. For this reason, keeping a debit/checking account in your financial mix is a good way to offset your spending. We recommend the Chime Visa debit card, which encourages you to save as you spend. With each purchase, your transaction is rounded up to the nearest dollar and the rounded up amount is automatically deposited into your savings account.

Start investing

It’s OK if you think you’re too young to invest, or if you feel this is only something reserved for rich people or older generations. Those are feelings we all tend to have since there is truth to the idea that you need money to make money. So how does a recent college graduate saddled with bills even think about investment options?

For starters, you don’t have to be a stock market master to start investing. Investing is essentially saving money in a way that makes it grow via the power of compounding interest. When you begin your first post-graduate job, a good way to begin investing is to find out if your employer sponsors a 401(k) retirement plan with a matching contribution. If so, your employer will match your contribution up to a certain percentage. This is essentially free money.

If no 401(k) is available or if you’re self-employed, you can look into a Roth IRA. For 2017, the maximum you can contribute to this tax-advantaged retirement account is $5,500 if you’re under 50; $6,500 if you’re over 50. With a Roth IRA, your deposits are made with after-tax income and withdrawals are tax-free.

Whatever you do, don’t fall into the comfort zone of thinking that it’s too early to save for retirement. The earlier you start, the more your dividends and earnings will build. This can leave you with a nice, big nest egg when retirement rolls around.

On a final note, graduating college isn’t just about earning a degree; it’s a chance to reinvent yourself personally, professionally and financially. Take this time to make some changes to your money habits and you’ll set yourself up for a lifetime of success.

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