7 Steps to Thriving Financially as a New Graduate
Style Magazine Newswire | 6/11/2018, 12:54 p.m.
By Hugh Norton
Leaving college and entering the "real world" can bring about a mixture of excitement and anxiety. I remember feeling as if the possibilities were endless, but also feeling uncertainty about where or how to start the next phase of my life.
You may have countless opportunities ahead of you and will also likely face a few new challenges – including managing income, expenses and (often) student loans. Wherever you are, getting your finances in order could help you be better able to focus on enjoying life as a new grad.
By taking the following steps on the path to achieving financial independence, you'll be setting yourself up for a stronger financial future.
1. Create a budget
No matter what your future income might be, it's important to put a realistic budget in place based on what your current income is in order to live within your means. For example, if you make $2,000 per month, your expenses, savings and investments combined should not exceed that number. While budgeting typically means setting limitations, you may be surprised how much freedom the certainty of having a budget can give you.
To start, follow this step-by-step guide to creating a monthly budget:
Calculate your income. The first step is to calculate all of your monthly income from your work pay, side-gigs, regular financial support you may get from family and/or any other funds coming in on a regular basis.
Evaluate your expenses. List all of your expenses, including rent, food, transportation, loan payments, entertainment, etc. Taking an objective look at the list, break your expenses into "wants" versus "needs." When calculating, don't forget to put money aside for taxes if you take on contract or freelancing work.
Track, trim and target. Once you start tracking, you may be surprised to learn where your money goes. Take a hard look at your expenses and start eliminating unnecessary spending by evaluating your wants. Sometimes reducing expenses is easier than cutting costs. Remember, your budget is a living document and you can always make adjustments and reevaluate as necessary.
There are many free tools at your disposal to help you create and stick to a budget. Online resources and apps can help you keep track of your income and expenses, making it easier to stick to your budget. To get started, try this Budgeting Calculator.
2. Prioritize paying off your student loans
Whether you have a student loan or other loan, you will drastically reduce the amount of money you will pay over the term of the loan by making extra payments towards the balance on those that have the highest interest rates. It may be tempting to defer or pay the minimums on your student loans, but the longer you wait to pay them off, the more interest will accrue. Making more than the minimum payment, even by a little, will help you reach your goal faster.
3. Build a safety net
You should aim to have three to six months of basic living expenses in your savings account as an emergency fund. You never know when you might need a car repair, lose your job or have to handle an unexpected financial emergency. These expenses could put you in a tough place if you don't have a safety net, forcing you to miss loan payments (and incur penalties or fees) or take on interest-accruing debt.