Home > Credit Tips with Tiff > Credit Tips with Tiff: How Can Grads Plan Their Financial Future?

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Dear Tiff,
I just graduated college. What should be one of the best times of my life feels pretty bleak and uncertain right now. I know you can’t help with everything, but maybe you could give me some advice on how to plan for my financial future when I’m not sure how to plan for anything?

Thanks,
Grumpy Graduate

Congrats on graduating college, Graduate! That is a huge accomplishment and definitely something to be proud of. I know it can be scary, but it’s awesome that you are thinking about your financial future now. Here are some things to keep in mind now that you’re out in “the real world.”

Budget

Now is a good time to create a monthly budget. Budgeting is a crucial skill and will set the foundation for your finances. You’ve worked hard for your money. You don’t want to get in a situation where you’ve overspent and end up getting into debt. Here’s a great article that covers the basics of a budget.

Creating a budget is a lot easier for me when I have goals. If I am saving for a trip or down payment on a new car, I’m a lot more motivated to make a budget and not touch my savings for things I want right now because I’m focused on a long-term goal.

Establish Credit

If you don’t have any credit established, it might be a good idea to get a small credit line to start establishing credit. If you have a student loan, you have probably established some credit—but if that’s the only credit you’ve used, you likely have what is called a “thin file.” You need more, different types of credit to establish a robust credit report.

A secured credit card might be a good option to start. Secured credit cards require you to provide a cash security deposit. Generally, the amount of your credit line is the amount of your security deposit. There is less risk with this type of loan since if you max it out and don’t pay, the card issuer can apply your security deposit to the balance. If you go this route, be sure to check the agreement to make sure your deposit will be applied to your balance without credit reporting consequences.

Always Check the Terms

Any time you get a loan it’s important to read the terms. I know, I know—boring! But it’s important to know what you’re getting into. Some credit cards have annual fees, monthly fees, and high interest rates. You need to understand what you’re signing up for so you can plan. And make sure you add your credit card payments to your budget.

You can check out some credit cards specifically for individuals looking to build credit here.

Prioritize Student Loans

If you graduated with student loan debt, welcome to the club! Student loans aren’t fun paying back, but it’s something that has to be done. I suggest paying as much as you can, as soon as you can. Interest accrues as long as you have a balance. The bigger your balance, the more interest you are going to end up paying.

It might seem awesome to have a lower payment and more play money now (and let’s be honest—it is awesome to have that play money), but if you can afford a bigger payment, you should go for it. It can save you thousands of dollars in the end. Honestly. If your monthly payment is really low, you might not even be touching the principal balance yet. A big chunk of your payment could be going to interest without paying down your balance. It’s worth looking into and checking to see how much of your actual balance is being paid down. If nothing else, it will motivate you to get it paid off sooner. Don’t forget to add these payments to your budget!

Plan for Retirement

Yes, I am mentioning retirement. I know it seems far off, but it’s important to pay yourself now and start saving the money you’ve worked hard for.

If you are lucky enough to get a job that offers a 401(k) or other retirement plan, take advantage of it now. And if the company you work for offers a match, contribute at least that amount. For example, if they offer a 5% match, contribute at least 5%. If you don’t have access to a 401(k), there are other options like an IRA or certificate of deposit.

Check this out if you need motivation:

  • Someone that saves $5,000 annually from the ages 25 to 35 will have $615,580 at the age of 60. This is assuming an annual return of 8%. The total amount invested is $55,000.
  • Someone that saves $5,000 annually from the ages 35 to 60 will have $431,754 at the age of 60. This is assuming an annual return of 8%. The total amount invested is $130,000 yet the person who started at 25 has $186,826 more.

You can find the chart here.

How is this possible? Compounding interest. The more you can build your balance up now, the more years it will have time to compound and grow. Keep in mind this is only an example. If you invest in the stock market, rates aren’t guaranteed. Reach out to a financial advisor for more personalized recommendations for any investments you want to make.

Save for the Future

In addition to saving for retirement, it’s a good idea to have a savings account that you can easily access. You’ll want a savings account in case of an emergency and for short- and long-term goals. If you can start saving 20% of your paycheck now and can live without that money, you should be able to set yourself up so you can live without 20% of your paycheck going forward. Any time you get a raise at work, give your savings account a raise as well. Plan your savings into your budget so you prioritize it as much as any other spending.

Keep Learning

You’ve finally graduated, which means you’re done learning, right? Wrong! You may deserve a break from the classroom, but try not to get in the mindset that you are done learning just because you’ve graduated. Continue growing your skills throughout your life. Doing so will make you more marketable and can help improve your financial prospects. And the best news is that there are a lot of options out there that won’t put you in debt like your student loans. Try free resources online like Coursera, Lynda, and Skillshare to stay on top of developments in your field or learn completely new skills.

Celebrate

I know things can feel uncertain as you transition from college to the workplace. But you just accomplished something huge! Use that momentum to keep you going in the future.

Congrats on your big accomplishment,

Tiff

Have a question for me? Email tipswithtiff@credit.com!

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