Financial Planning for the College Graduate
All that hard work has finally paid off, you’re a college graduate. If you are like most college graduates, that sheepskin came with a pretty hefty chunk of student loans that, since you are no longer a college student, you need to start paying off. But that is just one aspect of what you want to do once you graduate and need to start thinking about financial planning.
Even while you were still in college, you were probably getting lots of pre-approved offers for credit cards. Since most college students are a bit strapped financially, those cards can be hard to turn down. Today, I’m going to assume you were smart and only accepted one and only used in case of emergency so you aren’t already starting out with a bigger mountain of debt than your student loans.
So you are basically a clean slate with a clean, actually almost non-existent credit rating. This is a good thing, because if you plan properly you have nowhere to go but up from this point. Naturally, the first order of business after graduating is to get a job. Once you have found a job, it’s time to create a budget so that you can keep your credit rating good which will make your life easier as you get older and need more things.
Let’s get back to that student loan. Typically, various options are available for paying it back. Most graduates want to choose one of only two of those options. Take the lowest payment, so that they know they won’t fall behind and still will have money in their pocket, or take the highest payment they can afford so they can pay off the loan as quickly as possible. Both are mistakes. Try to choose a payment somewhere in the middle where it doesn’t break you financially, but you are still making large enough payments that you don’t end up paying three or four times the loan amount in interest.
So now you have your job, you’ve created your budget, you are building your credit rating. What else should you be doing? After making sure your budget covers all your expenses, take advantage of any retirement plans, stock options, etc. your new employer offers. Yes, you just graduated from college and retirement is a long way away, but the cost of everything just keeps going up. Better to retire with too much money than too little, right?
I always recommend that people not only build savings into their budget, but “play money” as well. No one likes to feel deprived and if you give yourself a weekly allowance to spend on anything you want, you will have a few extra dollars to go out with friends or to dinner. Or you could save your “allowance” for something bigger if you want. Either way, it doesn’t make you feel so restrained by your budget that you feel like every day is a struggle and you are going without things you want. You will still be going without everything you want, but you will be able to spend a few dollars on things “just because.”
If your job gives you bonuses, or overtime or anything like that, don’t think of that as “extra play money.” Put it to good use. If you don’t put it in savings, use it to pay down your student loan, or split it and do both. But when using it to pay down your student loan, make sure you mark that the extra money is to go to paying down the principle not simply make extra payments. This way you will pay less interest.
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