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Recent college graduates have their whole lives ahead of them. It’s an incredibly exciting time and one of the best times to learn about personal finance and make smart money decisions from the start. Here are three tips for college graduates who hope to find financial independence.
Use this loan payment calculator to determine what your monthly payments would be on a given loan amount.
Prioritize Your Student Loan Payments
Many student loan lenders offer a 6-month grace period upon graduation before loan payments must begin. This allows time to look for a job, get settled, and build your finances before you have to start paying them back.
Many college graduates get on a graduated loan repayment plan or an income-based repayment plan. While it’s great that there are so many options when it comes to repaying your student loans, the truth is, the faster you pay off your student loans, the better. You might also consider student loan consolidation if you have more than one.
Don’t make the mistake of delaying your student loan payments. Every time you get a bonus or extra money, put something toward paying off your debt. It will feel so amazing to be in your early 20s without any loan payments at all, so try hard to reach that goal so you can spend the rest of your life growing your wealth and not giving your money to your student loan lender.
Resist that Brand New Car
Of course, it is an amazing experience to buy a new car. It’s exciting for anyone, most certainly a college graduate. But as a recent grad, try to manage your lifestyle inflation. Lifestyle inflation is the tendency for one’s rate of spending to unnecessarily go up in conjunction with income, making it virtually impossible to get out of debt, increase savings, or invest more.
Remember that as soon as a car drives off the lot, it depreciates. So instead of buying brand new, consider buying a quality car that is just a few years old. Payments on a brand new car can be substantial. The money you would spend on a car payment could go a long way to reducing your debt instead.
Visit UFCU.org, give us a call, or visit your local financial center anytime to chat with a Personal Financial Representative.
Contribute to Retirement
It’s easy to ignore retirement contributions when you’re just starting out in your life and career. After all, retirement is a long way away. However, the biggest financial mistake you can make as a new college graduate is not contributing to retirement when you’re young. As soon as you get your first job, try to contribute at least 10% of your income to a retirement account. If your employer doesn’t offer a retirement plan, you can always open a Roth IRA on your own and contribute to that.
The reason retirement contributions are so important for a college graduate is because of compound interest. If you start investing later in life, like at age 40, you’ll have to contribute so much more each month to get to the same retirement goal. When you’re young, you have the power of compound interest on your side.
There’s no time like the present. If you take advantage of these three tips when you’re young, you’ll be well on your way to establishing very strong personal finances from the start of your career, which will serve you well throughout the next few decades of your life.