While senior year of college is hectic, it’s crucial for new grads to stay on top of their finances. Sure, you need to find a job and a place to live, but you can’t wait until those things fall in line to start paying attention to your bills and your budget. Of course, that’s exactly what some people do, which can lead to debt, a lack of savings and credit problems.
To help you (or the new grad in your life) stay focused, we put together a list of money tips to keep in mind during the transition from college student to full-time adult. We asked Alex Sadler, managing editor of personal finance site Clark.com and the money-basics series “Common Cents,” to share her top tips for managing money after college.
1. Spend Less Than You Make
This one sounds obvious, but it’s easy to lose control when you have an apartment to furnish, want to live a vibrant social life or haven’t quite gotten the hang of grocery shopping. And to know whether or not you’re spending less than you make, you have to track your spending.
“It’s easier said than done, but it’s something you can live by for the rest of your life,” Sadler said. “If more is going out than coming in, find ways to pick up extra cash.”
Keep in mind a large component of spending less than you make is saving properly. Sadler suggested automating your savings by participating in an employer-sponsored retirement plan, especially if your employer offers a savings match. You may also be able to set up automatic transfers to a savings account, so you’re less able to money on things you don’t need.
2. Don’t Ignore Your Student Loans
A huge part of spending less than you make is knowing your exact expenses. If you’re like most college students, you have student loans to repay soon. Even if your first payment isn’t due for a few months, you need to know what you’re dealing with now.
“Most college graduates don’t know how much they owe until their first bill comes in the mail,” Sadler said. And because of accrued interest, you may owe more than you recall borrowing. “Figure out exactly how much you owe and what your options are: Do you qualify for loan forgiveness? Income-based repayment?” Your student loan repayment options vary depending on the kind of loans you have. Get a handle on them now, so you don’t miss a payment and damage your credit. Here’s a helpful guide to understanding student loan repayment.
3. Know You’re on Your Own
Being responsible with money doesn’t mean you can’t have any fun, but it is on you to understand how to balance your needs and wants.
“Nobody wants to say, ‘I’m on a budget, I can’t go out,’ or ‘I can’t do that, I’m on a budget,’ when you’re 22 and you’re super excited about being in the real world,” Sadler said. At the same time, you have to own your decisions. “At some point, there won’t be anyone there to help you. Once you figure that out, it gives you a sense of motivation to really have control of your money, and it motivates you to understand the fact that money is what gives you freedom in life.”
4. Pay Attention Now — Or Regret It Later
“How you handle your money in your early 20s is so much more important than you realize at the time,” Sadler said. “Those choices will impact your finances for the next 10 to 15 years.”
Sadler speaks from experience. In her early 20s, Sadler had a couple hundred dollars on a store credit card that she ignored. She let the late payments stack up, which is one of the worst things you can do to your credit. “When I realized it at like 26 or 27, I paid it off in full, but there’s nothing you can do about those late payments,” she said. “I’ve fixed it, but it took a lot.”
A lot of young people adopt the mindset that they’ll pay off debt or save more later when they have more money. “But later never comes,” Sadler said.
5. Plan for Everything
You’ll never have more time in front of you than now, so start planning. Incorporate long-term goals like buying a house or saving for retirement into your regular budget, as well as short-term goals like vacation or large purchases. Planning ahead is the only way you can make those goals happen.
“I was knocked upside the head in my 20s when I asked my dad for $1,000 to go to a bachelorette party in Mexico,” said Sadler. “He looked at me and said, ‘Have you lost your mind?’ And I said, ‘I can’t pay for it.’ And he said, ‘Then you can’t go.’ ”
Doing the things you want to do requires discipline and may involve more planning than you realize. “It’s not never going out or eating ramen noodles, but it’s paying attention,” Sadler said.
6. Manage Your Basic Expenses
Maybe you feel like there’s hardly any money left over for fun things after you’ve budgeted for bills and loan payments. Remember, you’re not necessarily stuck with those fixed expenses. Sadler recommended re-evaluating your cellphone plan, shopping around for competitive insurance rates and finding cheaper entertainment options, whether that means cutting a subscription or switching service providers. The research is worth the time if the savings can give you more flexibility.
7. Get a Credit Card & Use It Responsibly
Your credit standing plays more of a role in your day-to-day life than you may realize. It factors into your insurance premiums in most states, affects your ability to get an apartment and can even come into play when you’re getting a new job. If you haven’t started building credit, now’s the time to start. You can see where your credit stands and track your progress toward a better credit score with a free credit report snapshot from Credit.com
Sadler emphasized the importance of using a credit card wisely and cautiously: “You need to pay the balance in full every month to avoid interest, so just use it to charge things you know you can pay off,” she said. “Understand the implications of using a credit card irresponsibly — one missed payment can seriously damage your credit.”
Want more guidance on how to be financially responsible after college? Here are 50 smart money moves to make before (or right after) you graduate.