The summer is upon us, and all across the country, many students have completed the rite of passage called graduation.
As they walk across the stage in their cap and gown to receive their well-earned diploma, a new set of doors open for these individuals; the future lies ahead with tremendous opportunity for recent graduates.
Whether the plan is to continue their education or join the workforce, students will need to gain an understanding of financial literacy and budgeting in order to keep their affairs afloat. Here, we have compiled a list of the top five financial tips for recent grads, which will surely help young students on their start toward economic independence.
1) Educate Yourself
According to a study by the National Endowment for Financial Education, only 24% of millennials demonstrate an understanding of basic financial literacy. Let’s face it – finances aren’t on the forefront of most college students’ radar. However, by getting acquainted with basic financial literacy and practices, recent grads can put themselves ahead of the eight ball by understanding how money matters work and affect them.
Grab a book or two on personal finances; Rich Dad’s Cashflow Quadrant by Robert T. Kiyosaki is a great start. Kiyosaki divides our modes of income into four separate quadrants, and expertly explains how all four of these types of income can stabilize our financial security. When grads begin to understand how finances affect our long-term economic growth, it becomes easier to implement financial literacy best practices.
2) Set a Budget
Budgeting is the most effective way of staying afloat financially. Once a graduate transitions into a job, they can begin budgeting by taking a look at their pay stubs. As the individual begins to get a good idea of what they make after their tax deductions, they can view their monthly earnings versus their bills.
Rent, utilities, internet, loans — these things add up! When monthly bill obligations are subtracted, we are left with our flexible income for the month.
When setting a budget, it’s best to be realistic about our wants versus our needs, as well as considering future expenses, like a vehicle, health expenses, or holiday months (i.e. Christmas in December).
Staying away from unnecessary purchases, such as clothing or meals and drinks at restaurants, can be a great way to practice self-control and remain true to your budget. This process isn’t always an easy one, but when recent grads get in the habit of mindfulness, it becomes much easier to adhere to.
3) Bank Smart
Having the ability to make an informed decision about where to bank can have tremendous benefits for recent graduates. With the sheer amount of banks and credit unions across the country, however, this task can seem daunting and overwhelming. But never fear, the financially-educated graduate can navigate these waters with ease!
When choosing a bank, it is very important to understand the charges a bank levies for opening and maintaining accounts; be sure to find these numbers first. Some charges can include fees for overdrafts, savings and checking accounts, and ATM withdrawals. Accessibility is another important factor to consider; the digital age in which we find ourselves often requires connectivity on-the-go.
This is where mobile banking comes in — it’s like having a personal teller 24/7, and you can remain proactive about checking your balances and statements. Also, online banks have few operating costs due to the fact they have no physical locations to maintain; this results in fewer fees for members. By educating oneself about best banking practices, it becomes easier to stay organized and keep an eye on our income and spending habits.
4) Don’t Knock the Side-Hustle
Having a secondary source of income can be very advantageous for recent graduates. This doesn’t mean adding another 40 hours to your work week, but punching the timecard for a few extra hours every week can add up! Consider a gig in the service industry, especially as a server, bartender or barista. These jobs generally have a flexible schedule, and can work around a primary, 9 to 5 position or any classes one may be taking.
The social element of these jobs can be a great way to network, as well. However, if the hospitality industry is unfamiliar or undesirable territory or undesirable, recent graduates still have plenty of options. Services such as Instacart provide hours to independent contractors who shop for and deliver groceries to clients, which can be a great way to earn extra cash in your spare time. By stashing away that extra money, recent grads can chip away at debt, or even give themselves a bit of capital for fun each week.
other valuable tips:
5) Build Credit
Building credit is a very important part of becoming financially independent. However, this should be done very responsibly! Many recent graduates and young professionals have a very short credit history, if any credit at all, so it is crucial to start the process early. Our credit refers to our creditworthiness, which is essentially defined as how likely we are to pay back our debt.
To build credit, a student can sign up for a credit card; there are many, many different ones out there. Stick to a low line of credit (i.e. how much money is available on the card), and the rule of thumb is to use only up to 30% of your credit limit. This credit utilization ratio factors into your overall score, so be sure to use it sparingly.
Recent college graduates can also build credit on their student loan repayment or a car loan. Remember, pay it on time and don’t overuse your card! Once good credit is established in some years, these individuals will be in a better position for bigger purchases, such as homeownership.
Financial independence is an issue many Americans struggle with. But, with a proactive mindset and some self-education in financial literacy, recent college graduates can put themselves on the right track for economic success. By remaining cognizant of the tips listed above, money matters can fall into place and become much more manageable.
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