Congratulations! After countless lectures, group projects, and late-night cramming sessions, you finally have that bachelor's degree in hand. But now that your college days are behind you, it's time to take control of your finances. Here are five ways to start.
1. Figure out your loan repayment schedule
Americans owe a combined $1.3 trillion in student debt, and many people aren't able to keep up with their payments. About 3.3 million borrowers have student loans in default, and with private borrowing on the rise, paying off student debt is getting harder than ever. Add in the fact that the average Class of 2016 graduate owes an almost frightening $37,172 in student loans, and it's no wonder the media is so quick to throw the word "crisis" around whenever the topic of college debt comes up.
But while you can't turn back time and un-borrow that money, you can take a close look at your loan repayment schedule so that you understand exactly how much that debt will impact your day-to-day finances. If, for example, your plan calls for a $300 monthly payment, you may need to make some sacrifices to come up with that money. The key, however, is to pay your loans on time and in full every month. Defaulting on those loans could really wreck your credit, and if that happens, good luck getting approved for an apartment, car loan, or any other major component of adult life as we know it.
2. Create a budget
During college, when you're feasting on instant noodles and sharing a bathroom with 14 housemates, it's hard to wrap your head around the idea of budgeting. But once you're out in the real world, creating a budget is crucial. It will help you track your spending, avoid debt, and uncover savings opportunities. To start, identify your non-negotiable expenses (like rent, transportation, and food). Once you've accounted for those, add in your variable costs (entertainment, clothing, and the like). Be sure to include a line item for your student loan payments (another non-negotiable, and don't let anyone tell you otherwise), as well as any other debt payments you have. Ideally, once you're done, you should have some money left over for savings. If you don't, reexamine all of your expenses and find places to cut corners.
3. Build an emergency fund
As a recent graduate, you may not have a mortgage, nor a family counting on you for financial support, but that doesn't mean you don't need as emergency savings fund. You never know when you might lose your job, get injured, or find yourself in a situation where you have no money coming in. As an immediate goal, amass enough savings to cover three months of living expenses. Once you've reached that target, you can start saving for other things, like vacations, a new car, or, better yet, retirement.
4. Get in the habit of saving for retirement
The sooner you start putting money aside for retirement, the greater your chances of accumulating a healthy nest egg. Imagine you're 22, living mostly paycheck to paycheck with only a few dollars to spare at the end of each month. Even if we're talking about a sum as piddly as $10 a month, if you start there and ramp up your savings over time, you'll be amazed at how much money you eventually wind up with. Let's be optimistic and assume you're able to save $1,000 a year starting at age 22. Even if your annual savings never manage to exceed that amount, if your investments generate an average yearly return of 8% (which is below the stock market's average), by the time you're 67, you'll wind up with in the neighborhood of $400,000. By starting early, you can grow a relatively small amount into a pretty impressive nest egg.
5. Start paying down credit card debt
When you're a poor college student, you often have no choice but to use credit cards to cover your expenses, and carry a balance. But once you have a job, it's time to make that debt disappear. In 2013, the average credit card balance among college students was about $500, and while that's not a terribly high amount, there are many grads out there who owe considerably more. If you owe $1,000 on your credit card and take two years to pay it off at 12% interest, you'll lose $130 in interest charges -- which, as we just learned, is money that could go a long way if it were saved for retirement instead. Better to curb your spending or take on a side job to eliminate that debt, and move forward with a clean slate.
Whether you're ready for adulthood or not, you owe it to yourself to start off on the right foot. A few smart money-related decisions early on can set you on a path to financial security. And really, isn't that the dream?