Your personal finances after graduation — part one

Grad Caps 3

The transition period between college life to the professional world can be a formative time. It’s an opportunity to build a foundation for a healthy lifestyle during the next phase of your life. This includes your personal finances.

Some people realize years after they start their careers that they need to get the financial part of their lives in order: they realize the need for smarter spending, paying down debt, and saving for retirement. Unfortunately, this realization often comes after experiencing the consequences of poor financial habits. Committing to improving your financial situation at any point in your life is a good thing but it’s much easier to accomplish when you start earlier in life: before you take on more debt, increase your necessary expenses, or make any financial mistakes.

To start, you need to be in the financial mindset of saving. It’s easy to think that you won’t have enough money to save for goals or invest for retirement. I’m not going to say that’s never the case. But many people just need an honest assessment of their financial situation and spending habits to realize that they can afford to set aside some money every pay period.

To help you get into that mindset, define the things you need and build your finances around these expenses. Your needs should include: housing, food, utilities, insurance, savings, and debt repayment. We have two articles (here and here) that can help you with this exercise.

Don’t assume anything – you may think you need to get your own place to live but is it possible to stay with your parents after graduation, at least for a little while? Even if you pay your parents rent, it will (hopefully!) be cheaper than getting your own place. It may not be a desirable living situation – and there are certainly situations in which you do need your own place – but the money you save on rent can help you get a good start on your savings goals.

The point of this exercise isn’t to abstain from the things you want; the point is to make sure you have enough money for the things you need, to save money regularly, and to stay current with all debt repayments. Once you’ve set aside money for these things, you can spend money on the things you want without worry.

Once you have defined your needs, avoid adding regular expenses that you either don’t need or can’t cancel without penalty. For example, try finding free ways to exercise instead of joining a gym. Cable TV is fine if you can afford it — but find a service that doesn’t charge a penalty for cancelling your subscription before the end of the agreement. This way, if you should need extra money in the short or long-term, you have the freedom to use any money usually reserved for the things you want, instead of the money reserved for saving and buying the things you need.

Avoiding new regular expenses also means avoiding more debt. The first big purchase you’ll likely want to make after graduation is a car. If you really need one, save until you can buy one with cash. It may take a while and you may not be able to afford as nice of a car as you would like, but taking on new debt adds an additional expense every month. Similarly, if you have a credit card, be sure to pay off your balance every month. The interest rates on those things can be financially crippling.

Think of it this way: taking on more debt effectively decreases your income. If you make $1,500 a month after taxes and have $750 in monthly debt payments between student loans, credit cards, and an auto loan, half your paycheck is spent before you even get it. That’s $750 you can’t spend on things you need like rent and groceries; $750 you can’t invest for retirement or save for other financial goals.

These are just a few ideas that can help you get into the right financial mindset as you prepare to start your career and venture out into the professional world. Our next article will suggest a few specific ways to get your personal finances off on the right foot. Be sure to check back in a few days!

Until then, if you have any questions or your own suggestions, feel free to leave a comment below or send us a message.

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