Personal Finance Tips for New College Grads
(Originally published October 2021) If you’re starting your final year of college, now is a good time to think about the upcoming financial responsibilities you’ll face when you graduate. We share advice to help you set yourself up for success.
Graduating college and entering the "real world" is a pivotal moment for many people. Now that members of Generation Z (Gen Z) are graduating college, new sets of financial decisions await them.
While it requires more responsibility and discipline, being intentional and planning for your financial future is essential to starting off your post-college life on a good note.
So, given the many obligations that come with adulthood, how should you manage your money? We talked to our lead financial educator, Stacey Black, for tips to help this year's grads successfully take on a new financial journey.
Be Intentional With Social Spending
The oldest of Gen Z is reaching age 26, and though many past generations have taken on societal issues, research shows Gen Z is more socially minded than previous generations. From issues like higher education, economic security, social impact and more, much of their identity is shaped through a social lens.
In the same way, social habits can influence someone's spending. A 2022 CBRE article shares that Gen Z had the highest percentage of social buyers — internet users who made at least one purchase via social network channels during the year — compared to other generations. With technology and social media at our fingertips, Black says it's important to be intentional with your spending, "Ask why before you buy. Do I really need this? Do I have something that is similar? Can it wait?”
Estimate Your Future Expenses
In some cases, it's common for parents to provide support by paying some portion of tuition and living expenses while their kids are in college. In fact, according to a report by Sallie Mae and Ipsos, 72% of families relied on parent income and savings (PDF) to pay for college in the 2022-23 school year. However, things may begin to look different after graduating as you gain financial independence and focus on your next steps.
Make sure you understand your circumstances and are prepared for the financial realities of becoming an adult.
"While everyone's post-college journey might look different, many face a lot more financial responsibility and a lot more income than they're used to," Black said. "Based on what your parents are willing to help support, figure out what areas you might need to start paying attention to or start planning for yourself. Prepare yourself for the fact that you may not be able to live the same lifestyle as you did when you lived with your parents."
Are you going to be responsible for paying your own phone bills? How are you going to pay for rent, utilities and insurance? Do you have any student loans to start paying off immediately? These are some important questions to ask yourself.
Consider Your Options
College graduates have many choices. Some grads often move to new places while others may move back home. Although moving back home might not be your first choice, it may be worth considering to help you save money. Evaluate your options and interests and choose a post-college path that aligns with your short- and long-term financial goals.
Renting With Roommates
In January 2023, it was reported that the average American renter pays more than $1,300 a month. Signing a new lease is a big deal, and you don't have to do it alone. Consider easing into the real world by living with roommates you trust. For a smooth transition, determine how much money you want to save, how long that will take and communicate your timeline with your roommates.
Moving Back Home
After graduating, you may not have a clear path for what's next. Whether you're paying down student loans, in between jobs or you're starting fresh, moving back home may be a smart decision to help you save money. With less financial pressure, you could save for a few months while looking for jobs and your next home. On the flip side, Black says, “You'll want to keep in mind that you'll have less privacy and independence. Make sure you are saving intentionally, as it can be easy to fall back into old habits. While each journey will look different, to make better choices, review all your options,” says Black.
Be Aware of Hidden Costs
When planning for post-college expenses, be sure to consider any hidden costs that may come into play. For example, think about how employment might add to your expenses: You might have to purchase an entire professional wardrobe or start paying for parking at your office. Looking to live in another state or country? Be aware of all the costs associated with moving and adjusting to a new area.
"You don't always think about all of the little things off the top of your head, so it can be helpful to have conversations with friends and family who've experienced these things and ask them, 'What are some expenses that I'm not thinking of?'" Black said. "Then start listing and keeping track of these items so you don't forget about them."
Research Big Purchases Before You Buy
As you take on more responsibility for bigger purchases, it's important to research your options ahead of time to ensure you're getting the best deal. BECU has resources you can use to create an initial budget and figure out how much you can safely afford. You can start here, by signing up for a free budgeting webinar. Whenever you're making any decision, Black recommends looking for cheaper options or alternatives to land on more cost-effective outcomes.
Commit To Learning About Personal Finance
Throughout college, learning was a top priority. Try to stay motivated to keep learning after you graduate, focusing some of that energy on your financial health.
"Dig in and figure out how you learn the best," Black said. "Think of this as a fun way to get engaged and invested in your financial education. This will ultimately set a solid foundation for your financial health down the line."
Of course, when researching personal finance topics, always be sure to look at more than one source. If you watch a TikTok or YouTube video with financial advice, make sure to fact check the information.
Also, take advantage of any free resources to help you get familiar with financial topics, from seminars and virtual events to videos or books. You may want to start researching things like 401(K) retirement plans and what factors help and hurt your credit score to get a head start.
Establish Financial Goals
Setting attainable monetary goals will help guide you when transitioning into post-grad life. According to Lincoln Financial Group, 83% of people who set financials goals reported feeling more confident about their finances after just one year.
"It's great to have exciting goals like saving up for a new car or planning for your next vacation," Black said. "But it doesn't always have to be a huge goal; it just has to be one that will motivate you to keep saving."
Some goals will help you maintain financial responsibility. Getting a head start as a graduating college student will ensure that you are well prepared for the next stages of your life.
BECU members can sign up for free Financial Health Checks with trained specialists to help you achieve your financial goals. In addition, Black recommends putting these at the top of your prioritized list:
Pay Off Debt
Getting out of debt means having more control over your income. It's a good idea to pay off your credit card debt as quickly as you can to save on interest. You might be surprised how much you can save overall by dedicating a little extra toward your debt each month.
Build Up a Good Credit Score
Having good credit can open the gate to many financial opportunities and plays a big role when making moves such as buying a car or renting an apartment. Property managers use your credit score to decide whether to rent to you, and lenders use your credit score to determine if you qualify for a loan.
Commit To Saving
Maintaining a back-up savings fund will help you prepare for any emergencies or unexpected situations. Black recommends setting a goal of saving three to six months of expenses.
Open a Retirement Account
Although retirement may be the last thing on your mind, it's a good idea to think about it early on if you can. The sooner you contribute, the more money you will gain in interest. Consider a Roth IRA because it allows you to contribute post-tax income at the beginning of your career, while your income tax rate is likely to be lower. You won't have to pay income taxes on it when you take it out as retirement money. Open an account and start contributing to it monthly to reap major savings for retirement.
Stay on Track
Once you've set some goals for yourself, actively work toward reaching them. Here are some of Black's tips to help you stay motivated and on track:
Set Up Automatic Savings
If you're the type to easily forget things, setting up automatic deposits to your savings accounts will be your best friend. Whether it's for your emergency fund or Roth IRA, you can set up automatic deposits directly from your paycheck or another account. This way, you are consistently moving closer to your goals every month without even realizing it.
Create Separate Funds for Each Goal
As a fun way to visualize your goals, some financial institutions let you create separate accounts for each of your goals. For example, if your goal is to save up for buying your dream car, label the account with the name of the car. This will help remind you of your specific goals every time you contribute to it and help you stay organized.
Budget For Short-Term Expenses and Long-Term Goals
The key to budgeting as a soon-to-be college graduate is finding the right balance between spending on short-term gratifications and saving for longer-term financial goals. There are plenty of budgeting strategies out there that are tailored to different lifestyles, so find one that works best for your individual values and needs.
While it's important to give yourself permission to spend money on things you want to buy, it should always come with a reasonable limit. In general, this means cutting back to avoid overspending.
However, Black recommends not totally depriving yourself, either.
For example, if you're an avid coffee drinker and you're buying a cup of coffee daily, don't completely cut it out of your budget. Instead, cap it at just three cups of coffee per week to slowly phase it down and still satisfy your cravings.
If you're contemplating an expensive purchase, consider the 30-day rule: Put it off and check back in 30 days to see if you would still like to buy the item. This will encourage you to really think before making a bigger purchase and reduce your tendency to buy on impulse.
"At the end of the day, it's okay to spend money on short-term desires, but keep in mind that it will take you that much longer to reach your financial goals," Black said. “Getting in the habit of budgeting now will be the best way to practice managing your finances for the future once you have more to spend.”
"Think of this moment as an opportunity to set a solid foundation," Black said. "What you do now financially can either hurt you or help you in the long run. Do the work now to set yourself up for success in the future."