The first few years after graduation can be a whirlwind. You might start a new job, adapt to a new city, or try to make new friends while keeping in touch with old ones – or you might do all of that and more.
Often times, when things settle down, you will realize that your finances are going in the wrong direction. Because of this, getting your ducks in line early on can help so that you can focus on building your new life without worrying about money management.
Fortunately, you don't have to figure it all out yourself. We've got you covered with these helpful tips.
Find out your student loans ASAP
Most private student loans and all federal loans have a six-month grace period after graduation. No payments are due during this time. This is the ideal window to assess your student loan situation and what your monthly payments will look like.
If you have federal loans, log into your federal student aid account and review your repayment options. The standard option is the standard 10 year plan. This plan has the highest monthly payments but the lowest total interest.
You can also choose an income driven repayment plan (IDR) that uses your income and family size to determine your monthly payment. IDR plans often have lower payments but longer terms, either 20 or 25 years.
Only choose an IDR plan if you cannot afford the standard payment or if you are working towards public credit (PSLF). The PSLF program requires graduates to work in an eligible nonprofit or government organization for 10 years while making payments. After 120 payments, the remaining loan will be waived without any tax consequences. If you're a teacher, social worker, or member of the military, the PSLF program can be a good fit.
If you have a personal student loan with a high interest rate, you should consider refinancing at a lower interest rate. Compare deals from multiple providers like SoFi, Commonbond, and LendKey to find the best price. You can be turned down if you don't have good credit or haven't started your first job. See your free credit score on the Mint app and check back after your job search to see if you are a better candidate.
Save an emergency fund immediately
An emergency fund is the backbone of your finances. It prevents you from falling into credit card debt or withdrawing your savings in the event of a financial crisis. Use your emergency fund for unexpected expenses like losing your job, transporting your dog to an emergency vet, or flying home to a funeral.
An ideal emergency fund for a graduate should include three months of expenses. Add up your basic fixed costs, including rent, transportation, health insurance, groceries, utilities, auto insurance, and debt payments. Multiply that number by three. Don't worry if it takes you a while to save enough.
Keep your emergency fund in a savings account and only use it for real emergencies. Don't tap it to pay for Christmas gifts or a bachelorette party.
If you need to use your emergency fund, try to replace that money ASAP. You may need to cut non-essential expenses for a few weeks to rebuild the emergency fund.
Start budgeting and tracking expenses
A budget is a list of your expenses and how much you can afford to spend in each category. Budgeting helps you spend as much as you can so you don't overdraw your bank account or pile up credit card balances.
To create a budget, log into Mint and use the budget template, which has a variety of categories. Then decide how much you normally spend in each category. You can find out by reviewing your credit card and banking transactions.
Compare these expenses with your monthly income. If your expenses exceed your income, you have to cut back. If you still have money in your budget, consider using it to save or invest.
Create sinking funds for your goals
A sinking fund is a savings account that you use for a specific purpose, such as: B. for a vacation trip home, a trip with friends or the exchange of your laptop.
Having multiple sinking funds will ensure that you have enough cash for what is really important to you. It also means that you are not pulling any money out of your emergency fund.
Create sinking funds for:
Travel and vacation
Gifts, including weddings and Christmas
Car insurance if you pay for it semi-annually
Down payment for a house
Set up separate savings accounts for each declining fund so you can more easily see how much you have for each goal. Many online banks allow you to open multiple savings accounts and give them a nickname such as “Vacation Travel” or “Pet Costs”.
Start investing now
In your early twenties, the thought of retirement seems so far away. Why should you worry about retirement when you have decades to think about it?
But investing is rewarding for those starting out young, even if they can only afford to invest $ 15 or $ 20 a month. The earlier you start, the less you will have to save over time.
For example, let's say you start saving $ 20 a month in an investment account that brings in 8% annually for five years. After five years, you will have $ 1,475.28.
Then you get a huge raise and start saving $ 200 a month in the same account. After 40 years of saving $ 200 per month, you have $ 741,897.56. If you waited until you could afford to save $ 200 per month, you would have only $ 705,717.89 in total. That's a major difference when you consider that you only contributed $ 1,200 out of pocket in the first five years.
You can easily invest with a robo advisor like Betterment or Wealthfront. Robo advisors will review your current income, savings, and retirement goals to determine how much you should be saving and what to invest in.
You can link your bank account to the robo advisor, which will automatically start investing on your behalf. Think of a robo advisor like a slow cooker – as long as you add the ingredients, you'll have a meal ready when you're hungry.
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