Hasta La Gadget!

A new graduating class of talented college students will soon walk across the stage to receive their diplomas, and if you’re reading this, you may be one of them. While you’ve proven your academic excellence, there will certainly be opportunities to continue learning outside of the classroom.

As a parent who hopes to soon watch as my own children reach this milestone and start their independent lives, I see firsthand that young people still have a lot to learn about money and budgeting. For some of you, most immediately addressing the cost of your university degree is top of mind. Or you may have to make decisions about other topics that were not in your textbooks, such as living expenses and investing for the future.

Here are three tips for recent grads to consider as they embark on a path toward future financial independence.

1. Educate Yourself On Student Loan Debt

Now that you’ve earned a degree, take the time to research and understand your student debt obligations. According to a recent Bank of America/USA Today Better Money Habits Millennial Report, half of 22- to 25-year-olds who went to college have student loans, and only 45 percent feel prepared to pay their loans back. To gain confidence and map a plan to pay down student debt over the next five, 10 or 20 years, you should first understand:

• The type of loans you hold: Do you have private or federal loans and are they subsidized or unsubsidized? This information will directly influence the interest you pay in the future and the amount of time you have to pay your loans back.
• The total amount you will owe: Understand the big picture — what is the total amount of loans you will owe? This includes the amount that you borrowed — called principal — and the amount you are being charged each month for that borrowed money — called interest. Remember that most loans require interest payments, subsequently increasing the amount of money you’ll need to repay over time.
• Repayment period: In most cases you will have a minimum required payment for each loan every month. Calculate this number early on so that you can factor it into your budget and understand how it will impact your spending and saving.

These videos from BetterMoneyHabits.com can also help you learn more about repaying student loans.

2. Make A Budget

As you find yourself in a new job, with new financial responsibilities, it’s easy to lose track of where your money is going. Get a handle on how you’ll take control of your financial situation by taking the time to put pen to paper and make a budget that outlines your income and expenses.

First, identify how much income you actually bring in each month after taxes — take-home pay can look very different from your total salary. Second, outline priority expenses such as rent, groceries, utilities, student loans and car loans before moving on to discretionary expenses such as entertainment, travel and shopping. If your expenses exceed what you can actually afford with your income, you probably want to reassess your spending to find the right balance.

Finally, revisit where you stand at the end of the month and adjust accordingly. It’s not always fun, but staying cognizant of your spending will ensure you’re able to meet your financial goals and avoid unnecessary hardship down the road.

3. Save For The Future

Perhaps the most challenging aspect of financial management as a new grad is determining how much money you’ll need for unexpected life events and big-ticket items that are yet to come. The Millennial Report found that more than half of 22- to 25-year-olds do not have a savings goal for the months or years ahead. The good news is that the survey also found that for those who do set savings goals, they are likely to meet them. Of the 44 percent of millennials who have a savings goal, 76 percent typically meet that goal.

Additionally, if you are planning a large purchase, like a new TV or vacation, set a goal with a timeline to determine how much money you’ll need to save from each paycheck in order to meet that goal. It may be worth setting up a separate savings account or utilizing online banking savings tools to help you reach your goal. Be cognizant of what your true needs are for everyday spending; you’ll appreciate your early efforts to save as you settle into life later on.

As you think about more long-term savings needs — like for retirement — it pays to start saving early. You may also want to ask your employer if it offers a company-sponsored retirement savings plan. In many of these plans, your company may also contribute to your retirement through matching contributions.

At BetterMoneyHabits.com, there are resources on a variety of topics that offer additional guidance to those who are starting out on the path to financial independence.

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