5 Things To Do With Your Money After College
Congratulations! You survived college and earned your degree. Now you’re headed for the big leagues, or at least, full-time employment. It’s such an exciting time—but it can also be overwhelming. Once you land that job, what do you do with your new income? Buy a car? A house? Pay for a wedding? Here are five simple steps every new grad should take with their new income.
- Start making regular charitable donations. If you haven’t already, now is the perfect time to start supporting your church and/or other charities. It’s so easy to keep putting this off, thinking I’ll start giving to charity when I’m making more or I’ll start when I’m done with my student loans. But right out of the gate is the easier, best time to set this invaluable habit. And while I can’t tell you for certain that you can afford it, I know most of us in developed countries could find some expense to skip in order to make giving possible.
The overall average starting salary for a Class of 2016 bachelor’s degree graduate stands at $50,359, according to results of NACEs Spring 2017 Salary Survey. So if you’re making $50,000, giving 5% would be $208/month. If that’s too much of a stretch, just start with something.
- Contribute to your retirement account. I know retirement is the very last thing you’re thinking about right after graduating! But time is one of the key ingredients in saving enough for retirement. At the very least, you should aim to get your employer match. If not, you’re essentially leaving part of your paycheck on the table since it’s part of your compensation. The earlier you start, the more time will work its magic on your investments. The little you can contribute today can grow exponentially with the power of compound interest. If you’re making $50,000, 6% is $250/month. Once your student loans are paid off, it’s wise to contribute at least 15% of your income to make sure you are well prepared to retire. Which brings us to…
- Start paying off student debt. I know, it’s one week after graduation and you are likely still looking for that first “grown up” job. But try your best not to defer or extend student loan payments, especially once you land that job. Your future self will thank you. Deferral may seem like a great way to catch a break, and in some cases may be necessary. But it’s really no fun down the road when you want to buy a house or start a family and you’re still nowhere near paying off that debt.
We paid off our student loans in part by freezing our lifestyle as much as possible even after graduating. We lived in a one-bedroom apartment for years and kept driving our older cars, one of which we just sold, 15 years later. We kept shopping at ALDI, packing lunch, and eating dinners at home. We didn’t do anything crazy or extreme—we just kept rent, transportation, and food/entertainment expenses manageable, while choosing to splurge on travel before having kids.
- Make a budget. Just because you’re making the “big bucks” now at your real person job doesn’t mean money grows on trees. Don’t loosen the reins too much before you first make a budget. What can you afford now that you couldn’t before? Try to evaluate whether it’s worth your time both now, and in the future. Do you want to work another 5 years to pay for that new car? Is it really worth that much of your life?
Your new income needs new direction. Maybe you didn’t have much discretionary income in college, and now you do. Or maybe your living arrangements, transportation needs, or other factors are changing. Put your expenses in writing, making sure to account for #1-3. And if you’re not sure about how much you spend on variables like food, household items, and entertainment, look back over your last couple months of bank statements and take an average.
- Save for emergencies. If you didn’t learn this during college, I’ll let you in on a little secret: “emergency” expenses are inevitable. Expected the “unexpected.” Your car will break. You will get sick and have medical costs. You could get laid off. Budgeting is you doing your best to predict expenses and plan ahead, but life always throws curveballs. And they feel a lot less like real emergencies if you have some money saved to cover them. Start by saving $1000 and work up to saving 3-6 months’ living expenses.
If you save $166/month you’ll have $1000 in six months. If you save $83, it’ll take a year.
Unexpected fun stuff will crop up, too: the expenses of being in a wedding party, going on a mission trip, or seeing your favorite band. Consider keeping a few hundred extra in checking, or even opening a separate account, for “fun” or an “opportunity fund.” You won’t want to dip into your emergency savings for something that isn’t an emergency, but you do want to having something set aside for unpredictable expenses. It’s a great way to start building financial flexibility—you’ll be able to say yes to more opportunities without worrying about how you’ll also pay next months’ rent (or pay off those pesky loans!).
New grads, do yourself a favor and lay the groundwork for a stable financial future. Give, save, invest, budget, and pay down debt. Now is the time to set your lifestyle and develop habits that will serve you well for decades to come.
What financial advice would you give to new grads? What do you wish you would have done differently?
I love your advice, but you know, to a young person I think it perhaps falls on deaf ears. I watch a lot of my fresh out of college co-workers having a hard time living in LA and having the intention to save, but still want to put money towards having fun, buying new things, etc. I just don’t think they feel that urgency until they get older..for some young people anyway. Of course I know people my age who still don’t either!
I think this advice is super great! I’ve only been out of college for about 3.5 years, and I know that taking this approach was sooooo helpful for me. I was able to save up for an emergency fund, and pay off all my student loans! Being wise with money and also being charitable has definitely benefited so that I am able to be financially free!
Good advice Kalie. I like that you put charity first. I think it is important to start life with a sense of gratitude and not entitlement. That good first step will set the stage for good decisions down the road.
The one thing I wish I’d done better in my 20s would be retirement saving. Now that I’m staring 60 in the face, the wisdom of an earlier start is clear. While I agree with Tonya’s comment about the vagaries of youth, just because they don’t listen doesn’t mean we stop telling them.
This is great advice! I think the “freeze your lifestyle” concept is very important. College grads know how to live like students. Keep living like a student once you’re working and you’ve tapped into living below your means – the best foundation for gaining financial stability and growing wealth. I’m sending this to my daughter – who just started her first grown up job 🙂
These are awesome tips! I was told to continue living on a college student budget after graduating. Student loans will really continue to haunt you no matter your financial situation so taking care of them as soon as possible is really the key to living a little easier moving forward. Of course always having a few months expenses tucked away just in case is super important too.
Now hang on, shouldn’t #3 be #1? Or maybe #5 should be #1. I’d think it’d be wise to start paying down your student debt and saving for emergencies before you start donating money to charity… I mean, charities are great and everything but geez, it’s okay to put you and your finances first.
While these aren’t in a particular order, I think in many cases #1-3 could be done simultaneously. That might mean each one is slowed down a bit, and giving is less than your end goal, but I find it’s worth setting the habit because it’s easy for “later on” to never come.