Organizing Your Finances as a College Graduate
If you’ve just graduated from college, this is the perfect time to establish smart financial habits. With hopefully a full-time job awaiting, this is the time to establish habits you’ll continue throughout your life.
Where to start? It’s likely you’ve racked up some student loan debt. The good news is that federal student loans come with a grace period after graduation of usually six months. Borrowers don’t have to make payments during this time and can use that time to make sure they have a payment plan they can afford.
Look at your total loan amount, interest rate and expected monthly payment. If you can’t afford it, you may want to apply for a payment option that links your payments to your income. This can lead to paying more interest but will give you breathing room as you start your career. Also, make sure your loan servicer has your updated contact information so that statements and other information get to you on time.
Keep Track of Your Money
A cash flow analysis is an important financial habit to start because it lets you know how much money is coming in and what’s going out. Start simply with a piece of paper. List income streams on the left (most likely to only be your paycheck) and list fixed expenses on the right. These can include rent, car payments, insurance, food and an emergency fund. Then list variable expenses, such as gifts, vacations and dining out.
If there’s a gap between income and expenses, then it’s time to alter one or both categories. Can you get a roommate to cut costs? Use public transportation instead of owning a car? There are all kinds of budgeting apps that can help you decide expenses to cut and that keep track of where your money goes.
Along with an emergency fund of six months of living expenses, start the habit of saving your money by contributing to your employer-sponsored 401(k) or other retirement plan. Try to invest at least the minimum amount to get a matching contribution from your employer, usually 3-5 percent. This way, you’re giving your future self a raise without much work.
The Affordable Care Act allows you to stay on your parents’ health plan until you turn 26. If that isn’t an option, hopefully your employer offers health insurance.
If you have low medical expenses, as most healthy, young, single adults do, then look for a plan that has a health savings account, so you can save for health emergencies. Such medical plans may have high deductibles, which is money you pay out of pocket when you’re sick. However, the money is deposited before you pay taxes on them, and they grow tax free and can be withdrawn tax free for medical needs.